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•	general global economic and business conditions, including the impacts of the COVID-19 pandemic and disruptions in global oil markets;

•	our ability to compete successfully in our markets;

•	our ability to execute projects on budget and on schedule;

•	the potential for us to incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees;

•	our ability to meet our customers’ safety standards or the potential for adverse publicity affecting our reputation as a result of incidents such as workplace accidents, mechanical failures, spills, uncontrolled discharges, damage to customer or third-party property or the transmission of contaminants or diseases;

•	our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins;

•	our ability to implement our growth strategy, including acquisitions, and our ability to identify suitable acquisition targets;

•	our ability to operate or integrate any acquired businesses, assets or product lines profitably or otherwise successfully implement our growth strategy;

•	our ability to achieve the expected benefits of our restructuring actions, including restructuring our business into two segments;

•	material and other cost inflation and our ability to mitigate the impact of inflation by increasing selling prices and improving our productivity efficiencies;

•	our ability to accurately predict the timing of contract awards;

•	delays in enactment or repeals of environmental laws and regulations;

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•	the potential for us to become subject to claims relating to handling, storage, release or disposal of hazardous materials;

•	our ability to retain our senior management and other key personnel;

•	our increasing dependence on the continuous and reliable operation of our information technology systems;

•	risks associated with product defects and unanticipated or improper use of our products;

•	litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large‑scale projects;

•	seasonality of sales and weather conditions;

•	risks related to government customers, including potential challenges to our government contracts or our eligibility to serve government customers;

•	the potential for our contracts with federal, state and local governments to be terminated or adversely modified prior to completion;

•	risks related to foreign, federal, state and local environmental, health and safety laws and regulations and the costs associated therewith;

•	risks associated with international sales and operations, including our operations in China;

•	our ability to adequately protect our intellectual property from third‑party infringement;

•	risks related to our substantial indebtedness;

•	our need for a significant amount of cash, which depends on many factors beyond our control;

•	risks related to AEA Investors LP’s (along with certain of its affiliates, collectively, “AEA”) ownership interest in us; and

•	other risks and uncertainties, including those listed under Item 1A, “Risk Factors.”

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•	Advanced filtration and separation products, such as VAF self-cleaning filters, Ionpure® technologies and Vortisand® systems;

•	Wastewater treatment technologies, including the BioMag® system, clarification, odor control and sludge management solutions;

•	Disinfection solutions, covering a wide range of solutions from chlorine to ultraviolet (UV) light and ozone technologies;

•	Electrocatalytic and materials, which combines our electrochlorination, cathodic protection and anodes product lines; and

•	Aquatics products, which combines our highly-valued products, such as the Defender® regenerative media filter, with a complete set of solutions for our partners.

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•	the effects of the COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition, including by, among other things, decreasing customer demand for our products and services, limiting our access to our customers’ sites, putting at risk our ability to collect from customers amounts

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•	our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules or other execution issues;

•	we may incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees, which could reduce our profitability;

•	our inability to meet our customers’ safety standards or adverse publicity affecting our reputation as a result of workplace accidents or other incidents could have a material adverse effect on our sales and profitability;

•	our future growth is dependent upon our ability to continue to develop or acquire new products, services and solutions and adapt our business to meet the demands of our customers, comply with changes to government regulations and achieve market acceptance with acceptable margins;

•	our growth strategy includes growth through acquisitions, and we may not be able to identify suitable acquisition targets or otherwise successfully implement our growth strategy;

•	we may have difficulty operating or integrating any acquired businesses, assets or product lines profitably due to our failure to manage the growth effectively, the interruption of, or delays in, the operation of our existing business or other factors within or beyond our control;

•	we may not achieve expected benefits of our restructuring actions, including restructuring our business into two segments, which may result in additional restructuring charges if we are unable to operate within our plans;

•	material and other cost inflation and our inability to mitigate the impact of inflation by increasing selling prices and improving our productivity efficiencies could reduce our operating margins and adversely affect our business;

•	our inability to accurately predict the timing of contract awards may cause our financial results to fluctuate from period to period;

•	delays in enactment or repeals of environmental laws and regulations may make our products, services and solutions unnecessary or less economically beneficial to customers, adversely affecting demand for our offerings;

•	we may become subject to claims relating to handling, storage, release or disposal of hazardous materials and could incur significant costs as a result;

•	our inability to successfully retain our existing senior management and other key personnel or to attract and retain new qualified personnel could materially and adversely impact our ability to operate or grow our business;

•	a disruption in the continuous and reliable operation of our information technology systems and digital monitoring technologies may materially and adversely affect our operations and result in loss of revenue, data breaches, remediation costs, increased cybersecurity costs or non-compliance with certain laws and regulations, which may result in litigation or reputational damage;

•	we may be exposed to litigation, regulatory or enforcement actions and reputational risk as a result of the nature of our business or our participation in large‑scale projects;

•	seasonality of sales and weather conditions may adversely affect, or cause volatility in, our financial results;

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•	risks related to government customers, including challenges to our government contracts or our eligibility to serve government customers and the potential for our contracts with government customers to be terminated or adversely modified prior to completion could materially adversely impact our business and financial condition;

•	foreign, federal, state and local environmental, health and safety laws and regulations impose substantial compliance requirements on our operations, and our operating costs could be significantly increased by new or stricter regulatory standards imposed by environmental agencies or other governmental authorities;

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our international sales and operations, including our operations in China, may present additional risks, including, but not limited to, changes to trade protection measures, taxation policies or other laws and regulations, disruptions in our global supply chain, currency exchange rate fluctuations, restrictions on currency repatriation, safety and security considerations, labor disturbances and political instability;

•	our inability to adequately protect our intellectual property from third‑party infringement, or claims that we are infringing on a third party’s intellectual property rights, may result in competitive harm, the expenditure of significant time and resources enforcing our rights or defending against such claims, or restrictions on our sale of products or services;

•	our substantial indebtedness could adversely affect our financial condition and limit our ability to raise additional capital to fund our operations;

•	we require a significant amount of cash to service our indebtedness, and if we do not generate sufficient cash flow from operations to service our debt, we may have to refinance or restructure our debt, sell assets or seek to raise additional capital, which depends on many factors beyond our control;

•	because AEA holds a significant percentage of our common stock, it may influence major corporate decisions, and the interests of AEA and its affiliates, including certain of our directors, may conflict with the interests of the Company and our shareholders; and

•	general global economic conditions and our inability to compete successfully in our markets may materially and adversely affect demand for our products, services and solutions.

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•	changes in trade protection measures, including tariff and trade barriers and import and export licensing requirements;

•	potential negative consequences from changes to taxation policies;

•	unanticipated changes in other laws, governmental policies and regulations, or in how such provisions are interpreted or administered;

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risks associated with the withdrawal of the United Kingdom from the European Union, commonly known as “Brexit,” including volatility in worldwide and European financial markets, potential restrictions on the free movement of goods and labor between the United Kingdom and the European Union and other impediments to our ability to transact within and between each of the United Kingdom and the European Union;

•	potential disruptions in our global supply chain;

•	possibility of unfavorable circumstances arising from host country laws or regulations;

•	restrictions on, or taxation of, dividends on repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate;

•	currency exchange rate fluctuations and restrictions on currency repatriation;

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•	labor disturbances;

•	safety and security considerations;

•	increased costs and risks of developing and managing global operations, including our potential failure to implement global best practices, experiences of employee dissatisfaction and the improper allocation of resources, as a result of distance as well as language and cultural differences; and

•	political instability insurrection, armed conflict, terrorism or war.

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•	power loss, computer systems failures and internet, telecommunications or data network failures;

•	operator negligence or improper operation by, or supervision of, employees;

•	physical and electronic loss of data;

•	computer viruses;

•	intentional security breaches, hacking, denial of service actions, misappropriation of data and similar events; and

•	hurricanes, fires, floods, earthquakes and other natural disasters.

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•	the jurisdictions in which profits are determined to be earned and taxed;

•	the realizability of tax losses and other deferred tax assets and the change in any related tax valuation allowances provided or reversed;

•	sustainability of historical income tax rates in the jurisdictions in which we conduct business; and

•	the resolution of issues arising from tax audits with various tax authorities.

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•	making it more difficult for us to satisfy our obligations with respect to our debt;

•	limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions or other general corporate requirements;

•	requiring a substantial portion of our cash flows to be dedicated to debt service payments and/or debt repayment instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions or other general corporate purposes;

•	increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;

•	exposing us to the risk of increased interest rates as borrowings under our senior secured credit facilities (to the extent not hedged) bear interest at variable rates, which could further adversely impact our cash flows;

•	limiting our flexibility in planning for and reacting to changes in our business and the industry in which we compete;

•	restricting us from making strategic acquisitions or causing us to make non‑strategic divestitures;

•	impairing our ability to obtain additional financing in the future;

•	placing us at a disadvantage compared to other, less leveraged competitors; and

•	increasing our cost of borrowing.

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•	incur additional indebtedness;

•	pay dividends or distributions on our capital stock or repurchase or redeem our capital stock;

•	prepay, redeem or repurchase specified indebtedness;

•	create certain liens;

•	sell, transfer or otherwise convey certain assets;

•	make certain investments;

•	create dividend or other payment restrictions affecting subsidiaries;

•	engage in transactions with affiliates;

•	create unrestricted subsidiaries;

•	consolidate, merge or transfer all or substantially all of our assets or the assets of our subsidiaries;

•	enter into agreements containing certain prohibitions affecting us or our subsidiaries; and

•	enter into new lines of business.

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•	negative trends in global economic conditions or activity levels in our industry;

•	changes in our relationship with our customers or in customer needs, expectations or trends;

•	announcements concerning our competitors or our industry in general;

•	our ability to implement our business strategy;

•	our ability to complete and integrate acquisitions;

•	actual or anticipated fluctuations in our quarterly or annual operating results;

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•	trading volume of our common stock;

•	the failure of securities analysts to cover the Company or changes in analysts’ financial estimates;

•	severe weather, natural disasters, acts of war or terrorism or other external events;

•	economic, legal and regulatory factors unrelated to our performance;

•	changes in accounting principles;

•	the loss of any of our management or key personnel;

•	sales of our common stock by us, our executive officers and directors or our shareholders (including certain affiliates of AEA) in the future; and

•	general economic and market conditions and overall fluctuations in the U.S. equity markets.

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•	establishing a classified board of directors such that not all members of the board of directors are elected at one time;

•	allowing the authorized number of our directors to be determined exclusively by resolution of our board of directors and granting to our board of directors the sole power to fill any vacancy on the board of directors;

•	limiting the ability of shareholders to remove directors without cause;

•	providing that our board of directors is expressly authorized to adopt, or to alter or repeal, our amended and restated bylaws;

•	authorizing the issuance of “blank check” preferred stock by our board of directors, without further shareholders approval, to thwart a takeover attempt;

•	prohibiting shareholders action by written consent (and, thus, requiring that all shareholder actions be taken at a meeting of our shareholders);

•	eliminating the ability of shareholders to call a special meeting of shareholders;

•	establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at annual shareholder meetings; and

•	requiring the approval of the holders of at least two‑thirds of the voting power of all outstanding stock entitled to vote thereon, voting together as a single class, to amend or repeal our amended and restated certificate of incorporation or amended and restated bylaws.

•	prior to such time, our board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder;

•	upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

•	at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two‑thirds of our outstanding voting stock that is not owned by the interested shareholder.

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•	our suppliers may not provide materials that meet our specifications in sufficient quantities;

•	our suppliers may face production delays due to natural disasters, strikes, lock‑outs or other such events;

•	one or more suppliers could make strategic changes in the lines of products and services they offer; and

•	some of our suppliers, such as small companies, may be more likely to experience financial and operational difficulties than larger, well‑established companies, because of their limited financial and other resources.

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•	Within the Integrated Solutions and Services segment, we primarily provide tailored solutions in collaboration with our customers backed by life‑cycle services including on‑demand water, outsourced water (formerly

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•	Within the Applied Product Technologies segment, we provide a highly differentiated and scalable range of products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators.

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•	sales of tailored light industry technologies, heavy industry technologies and environmental products, services and solutions in collaboration with our industrial customers, backed by lifecycle services including emergency response services and outsourced water alternatives, to a broad group of industrial customers in our U.S., Canada and Singapore markets;

•	sales of products, services and solutions to engineering firms and municipalities to purify drinking water and treat wastewater globally; and

•	sales of a wide variety of differentiated products and technologies, to an array of OEM, distributor, end‑user, engineering firm and integrator customers in all of our geographic markets and aftermarket channels.

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•	to assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance;

•	in our management incentive compensation which is based in part on components of Adjusted EBITDA;

•	in certain calculations under our senior secured credit facilities, which use components of Adjusted EBITDA.

•	to evaluate the effectiveness of our business strategies;

•	to make budgeting decisions; and

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•	to compare our performance against that of other peer companies using similar measures.

(a)	Restructuring and related business transformation costs

(i)	Certain costs and expenses in connection with various restructuring initiatives, including severance costs, relocation costs, recruiting expenses, and third-party consultant costs to assist with these initiatives. This includes:

(A)	costs related to our voluntary separation plan pursuant to which approximately 220 employees accepted separation packages;

(B)	amounts related to the Company’s restructuring initiatives to reduce the cost structure and rationalize location footprint following the sale of the Memcor product line;

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(C)	amounts related to the Company’s transition from a three-segment structure to a two-segment operating model designed to better serve the needs of customers worldwide; and

(D)	amounts related to various other initiatives implemented to restructure and reorganize our business with the appropriate management team and cost structure.

(1)	all of which is reflected as a component of Restructuring charges in Note 14, “Restructuring and Related Charges” in Part II, Item 8 of this Annual Report (the “Restructuring Footnote”).

(2)	of which $8.3 million is reflected in the Restructuring Footnote in 2020.

(3)	of which $2.1 million and $11.1 million is reflected in the Restructuring Footnote in 2020 and 2019, respectively.

(4)	all of which is reflected in the Restructuring Footnote in 2020, 2019 and 2018.

(ii)	legal settlement costs and intellectual property related fees associated with legacy matters prior to the AEA Acquisition, including fees and settlement costs related to product warranty litigation on MEMCOR® products and certain discontinued products. This includes:

(iii)	expenses associated with our information technology and functional infrastructure transformation subsequent to the AEA Acquisition, including activities to optimize information technology systems and functional infrastructure processes. This includes:

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(iv)	costs associated with our secondary public offering of common stock held by certain shareholders of the Company, as well as costs incurred by us in connection with our establishment of our public company compliance structure and processes, including consultant costs. This includes:

(b)	Share-based compensation

(c)	Transaction related costs

(d)	Sponsor fees

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(e)	Other (gains), losses and expenses

(i)	impact of foreign exchange gains and losses;

(ii)	foreign exchange impact related to headquarter allocations;

(iii)	expenses on disposal related to maintaining non‑operational business locations, net of gain on sale;

(iv)	expenses incurred by the Company related to the remediation of manufacturing defects caused by a third-party vendor for which partial restitution was received;

(v)	charges incurred by the Company related to product rationalization in its electro-chlorination business;

(vi)

net pre-tax benefit on the sale of the Memcor product line, which is net of $8.3 million of discretionary compensation payments to employees in connection with the transaction and $2.1 million in transaction costs incurred in 2020, a gain on the sale of property at a location in our German operations in 2019 and a gain on the sale of assets related to the disposition of land at our Windsor, Australia location in 2018; and

(vii)	expenses incurred by the Company related to the write-off of inventory associated with product rationalization and facility consolidation.

(viii)	expenses incurred by the Company as a result of the COVID-19 pandemic, including additional charges for personal protective equipment, increased costs for facility sanitization and one-time payments to certain employees.

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(1)	For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see “How We Assess the Performance of Our Business-Adjusted EBITDA.”

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•	costs of $1.8 million incurred related to the secondary public offering of shares of common stock held by certain shareholders of the Company

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(a)	Represents costs and expenses in connection with restructuring initiatives distinct to our Integrated Solutions and Services and Applied Product Technologies segments, respectively, incurred in 2020 and 2019. Such expenses are primarily composed of severance and relocation costs.

(b)	Represents costs associated with a change in the current estimate of certain acquisitions achieving their earn-out targets, which resulted in a (decrease) increase to the fair valued amount of the earn-out recorded upon acquisition in 2020 and 2019, distinct to our Integrated Solutions and Services and Applied Product Technologies segments.

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(c)	Represents warranty costs associated with the settlement of a legacy warranty claim in 2019, distinct to our Applied Product Technologies segment.

(d)	Other (gains) and losses and expenses as discussed above in “How We Assess the Performance of Our Business-Adjusted EBITDA” distinct to our Integrated Solutions and Services and Applied Product Technologies segments include the following:

(e)	For the definition of Adjusted EBITDA and a reconciliation to net income (loss), its most directly comparable financial measure presented in accordance with GAAP, see “How We Assess the Performance of Our Business-Adjusted EBITDA.” Immaterial rounding differences may be present in the tables above.

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•	Reduction in costs incurred by the Company of $4.9 million related to the write-off of inventory in the prior year associated with product rationalization and facility consolidation;

•	A $3.6 million reduction in costs incurred by the Company from a settlement with a third-party vendor associated with remediation of manufacturing defects caused by the vendor;

•	Reductions in costs of $1.4 million related to the achievement of earn-out targets associated with certain acquisitions;

•	Reductions in product rationalization costs of $3.0 million related to charges incurred by the Company in its electro-chlorination business;

•	A gain on sale recorded in the prior year of $0.4 million which did not reoccur in the current year;

•	Increases in restructuring charges of $8.0 million primarily due to costs incurred following the sale of the Memcor product line; and

•	Release of an acquisition related contingency due to the passage of time in the prior year for $2.8 million.

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•	incur or guarantee additional indebtedness;

•	make certain investments;

•	pay dividends or make distributions on our capital stock;

•	sell assets, including capital stock of restricted subsidiaries;

•	agree to payment restrictions affecting our restricted subsidiaries;

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•	consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

•	enter into transactions with our affiliates;

•	incur liens; or

•	designate any of our subsidiaries as unrestricted subsidiaries.

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•	Operating cash flows in the year ended September 30, 2020 reflect an increase in net income of $122.9 million from the year ended September 30, 2019, primarily driven by the sale of the Memcor product line.

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The add back of non‑cash charges increased operating cash flows by $45.3 million for the year ended September 30, 2020 as compared to an increase to operating cash flows of $132.5 million for the year ended September 30, 2019, resulting in an overall reduction of $87.2 million. This reduction in the current year was primarily driven by the adjustment for gain on sale of business, as well as decreased share-based compensation expenses and foreign currency gains, offset by an increase in depreciation and amortization expense.

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The aggregate of receivables, inventories, contract assets, accounts payable and contract billings provided $23.1 million in operating cash flows in the year ended September 30, 2020 compared to $7.8 million in the prior year. The amount of cash flow generated from or used by the above mentioned accounts depends upon how effectively we manage our cash conversion cycle, which is a representation of the number of days that elapse from the date of purchase of raw materials and components to the collection of cash from customers. Our cash conversion cycle can be significantly impacted by the timing of collections and payments in a period.

•	Income taxes provided $0.6 million for the year end September 30, 2020, as compared to using $3.6 million during the year ended September 30, 2019, resulting in an increase to cash flows of $4.2 million.

•	The aggregate of prepaid expense and other assets and other non current assets and liabilities provided $17.8 million in operating cash flows in the year ended September 30, 2020 compared to the providing of $21.8 million in operating cash flows in the prior year.

•	Accrued expenses and other liabilities provided $3.4 million in operating cash flows in the year ended September 30, 2020 compared to a use of $9.2 million in the prior year.

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(a)	The amounts shown in this table do not include any net reductions for deferred financing fees. The amounts for current and long-term debt shown on the Consolidated Balance Sheets are net of deferred financing fees.

(b)	We occupy certain facilities and operate certain equipment and vehicles under non‑cancelable lease arrangements. Lease agreements may contain lease escalation clauses and purchase and renewal options. We recognize scheduled lease escalation clauses over the course of the applicable lease term on a straight‑line basis.

(c)	We lease certain equipment classified as finance leases. The leased equipment is depreciated on a straight line basis over the life of the lease and is included in depreciation expense.

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Background

Evoqua Water Technologies Corp. (referred to herein as the “Company” or “EWT”) was incorporated on October 7, 2013. On January 15, 2014, Evoqua Water Technologies Corp., acquired through its wholly owned entities, EWT Holdings II Corp. and EWT Holdings III Corp. (a/k/a Evoqua Water Technologies), all of the outstanding shares of Siemens Water Technologies, a group of legal entity businesses formerly owned by Siemens AG (“Siemens”). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the “Acquisition”). The stock purchase price, net of cash received, was approximately $730,577. On November 6, 2017, the Company completed its initial public offering (“IPO”), pursuant to which an aggregate of 27,777 shares of common stock were sold, of which 8,333 were sold by the Company and 19,444 were sold by the selling shareholders, with a par value of $0.01 per share. After underwriting discounts and commissions and other expenses, the Company received net proceeds from the IPO of approximately $137,605. The Company used a portion of these proceeds to repay $104,936 of indebtedness (including accrued and unpaid interest) under EWT III’s senior secured first lien term loan facility and the remainder for general corporate purposes. The Company did not receive any proceeds from the sale of shares by the selling shareholders. On November 7, 2017, the selling shareholders sold an additional 4,167 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional shares.

On March 19, 2018, the Company completed a secondary public offering, pursuant to which 17,500 shares of common stock were sold by certain selling shareholders. On March 21, 2018, the selling shareholders sold an additional 2,625 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional shares. On March 10, 2020 and August 10, 2020, the Company completed additional secondary public offerings, pursuant to which 13,000 and 9,200 shares of common stock were sold by certain selling shareholders, respectively. The Company did not receive any proceeds from the sale of shares by the selling shareholders in any of these secondary public offerings.

The Business

EWT provides a wide range of product brands and advanced water and wastewater treatment systems and technologies, as well as mobile and emergency water supply solutions and service contract options through its branch network. Headquartered in Pittsburgh, Pennsylvania, EWT is a multi‑national corporation with operations in the United States (“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, the People’s Republic of China, Singapore, the Republic of Korea and India.

The Company is organizationally structured into two reportable operating segments for the purpose of making operational decisions and assessing financial performance: (i) Integrated Solutions and Services and (ii) Applied Product Technologies.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) from the accounting records of the Company, and reflect the consolidated financial position and results of operations for the fiscal years ended September 30, 2020, 2019 and 2018. Unless otherwise specified, references in this section to a year refer to its fiscal year. All intercompany transactions have been eliminated. Unless otherwise specified, all dollar amounts in this section are referred to in thousands. Certain prior period amounts have been reclassified to conform to the current period presentation.

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Fiscal Year

The Company’s fiscal year ends on September 30.

Use of Estimates

The Consolidated Financial Statements have been prepared in conformity with GAAP and require management to make estimates and assumptions. These assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the audited Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used for, but not limited to: (i) revenue recognition; (ii) allowance for doubtful accounts; (iii) inventory valuation, asset valuations, impairment, and recoverability assessments; (iv) depreciable lives of assets; (v) useful lives of intangible assets; (vi) income tax reserves and valuation allowances; and (vii) product warranty and litigation reserves. Estimates are revised as additional information becomes available. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents are liquid investments with an original maturity of three or fewer months when purchased.

Accounts Receivable

Receivables are primarily comprised of uncollected amounts owed to the Company from transactions with customers and are presented net of allowances for doubtful accounts. Allowances are estimated based on historical write‑offs and the economic status of customers. The Company considers a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write‑offs are recorded at the time all collection efforts have been exhausted.

Inventories

Inventories are stated at the lower of cost or net realizable value, where cost is generally determined on the basis of an average or first‑in, first‑out (“FIFO”) method. Production costs comprise direct material and labor and applicable manufacturing overheads, including depreciation charges. The Company regularly reviews inventory quantities on hand and writes off excess or obsolete inventory based on estimated forecasts of product demand and production requirements. Manufacturing operations recognize cost of product sales using standard costing rates with overhead absorption which generally approximates actual cost.

Property, Plant, and Equipment

Property, plant, and equipment is valued at cost less accumulated depreciation. Depreciation expense is recognized using the straight‑line method. Useful lives are reviewed annually and, if expectations differ from previous estimates, adjusted accordingly. Estimated useful lives for major classes of depreciable assets are as follows:

Asset Class	Estimated Useful Life
Machinery and equipment	3 to 20 years
Buildings and improvements	10 to 40 years

Leasehold improvements are depreciated over the shorter of their estimated useful life or the term of the lease. Costs related to maintenance and repairs that do not extend the assets’ useful life are expensed as incurred.

Acquisitions

Acquisitions are recorded using the purchase method of accounting. The purchase price of acquisitions is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date preliminary fair values prior to the expiration of the measurement period, a period not to exceed 12 months from date

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of acquisition, are recorded as an adjustment to the associated goodwill. Contingent consideration resulting from acquisitions is recorded at its estimated fair value on the acquisition date. These obligations are revalued during each subsequent reporting period and changes in the fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Consolidated Statements of Operations. Acquisition-related expenses and restructuring costs, if any, are recognized separately from the business combination and are expensed as incurred.

Goodwill and Other Intangible Assets

Goodwill represents purchase consideration paid in a business combination that exceeds the value assigned to the net assets of acquired businesses. Other intangible assets consist of customer‑related intangibles, proprietary technology, software, trademarks and other intangible assets. The Company amortizes intangible assets with definite useful lives on a straight‑line basis over their respective estimated economic lives which range from 1 to 26 years.

The Company reviews goodwill to determine potential impairment annually during the fourth quarter of its fiscal year, or more frequently if events and circumstances indicate that the asset might be impaired. Impairment testing for goodwill is performed at a reporting unit level and the Company has determined that it has three reporting units. The quantitative impairment testing utilizes both a market (guideline public company) and income (discounted cash flows) method for determining fair value. In estimating the fair value of the reporting unit utilizing a discounted cash flow (“DCF”) valuation technique, the Company incorporates its judgment and estimates of future cash flows, future revenue and gross profit growth rates, terminal value amount, capital expenditures and applicable weighted‑average cost of capital used to discount these estimated cash flows. The estimates and projections used in the estimate of fair value are consistent with the Company’s current budget and long‑range plans, including anticipated change in market conditions, industry trend, growth rates and planned capital expenditures, among other considerations.

Impairment of Long‑Lived Assets

Long‑lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of the asset or asset group is measured by comparison of its carrying amount to undiscounted future net cash flows the asset or asset group is expected to generate. If the carrying amount of an asset or asset group is not recoverable, the Company recognizes an impairment loss based on the excess of the carrying amount of the asset or asset group over its respective fair value which is generally determined as the present value of estimated future cash flows or as the appraised value.

Assets Held for Sale

Assets and liabilities (the “disposal group”) are classified as held for sale when all of the following criteria are met: (i) the Company commits to a plan to sell the disposal group; (ii) it is unlikely the disposal plan will be significantly modified or discontinued; (iii) the disposal group is available for immediate sale in its present condition; (iv) actions required to complete the sale of the disposal group have been initiated; (v) the sale of the asset is probable and the completed sale is expected to occur within one year; and (vi) the disposal group is actively being marketed for sale at a price that is reasonable given its current market value. Upon classification as held for sale, such assets are no longer depreciated or depleted, and a measurement for impairment is performed to determine if there is any excess of carrying value over fair value less costs to sell. Subsequent changes to estimated fair value less the cost to sell will impact the measurement of assets held for sale if the fair value is determined to be less than the carrying value of the assets.

Debt Issuance Costs and Debt Discounts

Debt issuance costs are capitalized and amortized over the contractual term of the underlying debt using the straight line method which approximates the effective interest method. Debt discounts and lender arrangement fees deducted from the proceeds have been included as a component of the carrying value of debt and are being amortized to interest expense using the effective interest method.

In 2019, the Company entered into an interest rate cap to mitigate risks associated with the Company’s variable rate debt. The Company paid $2,235 as a premium for the interest rate cap, which was being amortized to interest expense

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over its term of three years. The Company terminated the interest rate cap in May 2020, and as a result wrote off the remaining unamortized premium of $1,118 to interest expense. No additional fees were incurred. The Company recorded $496 and $621 of premium amortization to interest expense during the years ended September 30, 2020 and 2019, respectively. See Note 12, “Derivative Financial Instruments” for further details.

Amortization of debt issuance costs and debt discounts/premiums included in interest expense were $1,735, $1,991 and $2,498 for the years ended September 30, 2020, 2019 and 2018, respectively.

In February 2020, the Company entered into Amendment No. 7 to the Credit Agreement, and as a result incurred $760 of fees which were recorded as deferred financing fees on the Consolidated Balance Sheets.

In January 2020, the Company utilized $100,000 of the proceeds from the sale of the Memcor product line to repay a portion of the Company’s First Lien Term Loans. As a result of the prepayment, the Company wrote off $1,795 of deferred financing fees during the three months ended March 31, 2020.

In July 2018, the Company wrote off $2,581 of deferred financing fees and incurred and expensed an additional $1,346 of fees related to the sixth amendment of its First Lien Term Facility in which an additional $150,000 was borrowed.

In November 2017, the Company wrote off $1,844 of deferred financing fees related to a $100,000 prepayment of debt, then subsequently wrote off another $1,150 of fees in December of 2017 due to the refinancing of its First Lien Term Loan. The Company incurred another $2,131 of fees as a result of the December refinancing.

Revenue Recognition

The Company adopted Topic 606, Revenue from Contracts with Customers on October 1, 2018, and recognizes sales of products and services based on the five-step analysis of transactions as provided in Topic 606 which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services.

For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or delivered to the customer as the Company has no obligation for installation. Sales of short‑term service arrangements are recognized as the services are performed, and sales of long‑term service arrangements are typically recognized on a straight‑line basis over the life of the agreement.

For certain arrangements where there is significant customization to the product, the Company recognizes revenue either over time or at a point in time. These products include large capital water treatment projects, systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. The Company recognizes revenue over time if the product has no alternative use and the Company has an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are not met, revenues from these contracts will not be recognized until construction is complete. Contract revenues and cost estimates are reviewed and revised at least quarterly at a minimum and the cumulative effect of such adjustments are recognized in current operations. The amount of such adjustments have not been material. See Note 4, “Revenue” for further details.

Product Warranties

Accruals for estimated expenses related to warranties are made at the time products are sold and are recorded as a component of Cost of product sales in the Consolidated Statements of Operations. The estimated warranty obligation is based on product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery costs expected to be incurred in correcting a product failure, as well as specific obligations for known failures and other currently available evidence. The Company assesses the adequacy of the recorded warranty liabilities on a regular basis and adjusts amounts as necessary.

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Leases

The Company accounts for leases in accordance with ASC Topic No. 842, Leases, adopted as of October 1, 2019 (Topic 842). Please see the “Accounting Pronouncements Recently Adopted” section below for information regarding this adoption. See Note 21, “Leases” for further details.

Lessee Accounting

The Company leases office space, buildings, vehicles, forklifts, computers, copiers and other assets under non-cancelable operating and finance leases. The Company determines whether an arrangement is or contains a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. If the arrangement contains a lease, the Company recognizes a right-of-use (“ROU”) asset and an operating lease liability as of the lease commencement date. Operating lease assets and finance lease assets are included in Operating lease right-of-use assets, net and Property, plant, and equipment, net, respectively, on the Consolidated Balance Sheets. The corresponding operating lease liabilities are included in Accrued expenses and other liabilities and Obligation under operating leases on the Consolidated Balance Sheets. The corresponding finance lease liabilities are included in Accrued expenses and other liabilities and Other non‑current liabilities on the Consolidated Balance Sheets.

Lessor Accounting

The Company generates revenue through the lease of its water treatment equipment and systems to customers. In certain instances, the Company enters into a contract with a customer but must construct the underlying asset prior to its lease. At the time of contract inception, the Company determines if an arrangement is or contains a lease. These contracts generally contain both lease and non-lease components, including installation, maintenance and monitoring services of the Company-owned equipment, in addition to sale of certain constructed assets. In situations where arrangements contain multiple elements, contract consideration is allocated based on relative standalone selling price. Lease components associated with underlying assets that have an alternative use are classified as operating leases with revenue recognized over time throughout the lease term. Lease components associated with underlying assets that have no alternative are classified as sales-type leases, with point in time revenue recognition at the on-set of the lease, or classified as financing transactions, with over time revenue recognition at the on-set of the construction of the underlying assets. In order for a component to be separate, the customer would be able to benefit from the right of use of the component separately or with other resources readily available to the customer and the right of the use is not highly dependent or highly interrelated with the other rights to use the other underlying assets or components.

Shipping and Handling Cost

Shipping and handling costs are included as a component of Cost of product sales.

Derivative Financial Instruments

The Company’s risk-management strategy uses derivative financial instruments to manage interest rate risk and foreign currency exchange rate risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and manage its exposure to interest rate movements. To accomplish this objective, in May 2020, the Company entered into an interest rate swap which has been designated as a cash flow hedge. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. The Company does not enter into derivatives for trading or speculative purposes. The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and Hedging” (Topic No. 815). The Company recognizes all derivatives on the balance sheet at fair value. Changes in the fair values of derivatives that are not designated as hedges are recognized in earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in the hedged assets or liabilities through earnings or recognized in Accumulated other comprehensive income (loss), net of tax (“AOCI”) until the hedged item is recognized in earnings.

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Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided against deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax asset will not be realized within a reasonable time period. The Company assesses tax positions using a two‑step process. A tax position is recognized if it meets a more‑likely‑than‑not threshold, and is measured at the largest amount of benefit that is greater than 50% percent of being realized. Uncertain tax positions are reviewed each balance sheet date.

Foreign Currency Translation and Transactions

The functional currency for the international subsidiaries is the local currency. Assets and liabilities are translated into U.S. dollars using current rates of exchange, with the resulting translation adjustments recorded in Accumulated other comprehensive loss, net of tax within shareholders’ equity. Revenues and expenses are translated at the weighted‑average exchange rate for the period, with the resulting translation adjustments recorded in the Consolidated Statements of Operations.

Foreign currency translation (gains) losses, mainly related to intercompany loans, which aggregated ($8,216), $12,599 and $7,018 for the years ended September 30, 2020, 2019 and 2018, respectively, are primarily included in General and administrative expenses in the Consolidated Statements of Operations.

Research and Development Costs

Research and development costs are expensed as incurred. The Company recorded $13,198, $15,300 and $15,877 of costs for the years ended September 30, 2020, 2019 and 2018, respectively.

Equity‑based Compensation

The Company measures the cost of awards of equity instruments to employees based on the grant‑date fair value of the award. The grant‑date fair value of a non-qualified stock option is determined using the Black‑Scholes model. The fair value of restricted stock unit awards is determined using the closing price of the Company’s common stock on date of grant. Compensation costs resulting from equity-based payment transactions are recognized primarily within General and administrative expenses, at fair value over the requisite vesting period on a straight-line basis.

Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock, plus the effect of diluted common shares outstanding during the period using the treasury stock method. Diluted potential common shares include outstanding stock options.

Retirement Benefits

The Company applies ASC Topic 715, Compensation—Retirement Benefits, which requires the recognition in pension obligations and accumulated other comprehensive income of actuarial gains or losses, prior service costs or credits and transition assets or obligations that have previously been deferred. The determination of retirement benefit pension obligations and associated costs requires the use of actuarial computations to estimate participant plan benefits to which the employees will be entitled. The significant assumptions primarily relate to discount rates, expected long‑term rates of return on plan assets, rate of future compensation increases, mortality, years of service, and other factors. The Company develops each assumption using relevant experience in conjunction with market‑related data for each individual country in which such plans exist. All actuarial assumptions are reviewed annually with third‑party consultants and adjusted as necessary. For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is generally derived by applying the expected long‑term rate of return on the market‑related value of plan assets. The fair value of plan assets is determined based on actual market prices or estimated fair value at the measurement date.

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Variable Interest Entities

Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company, in which the Company holds a 50% partnership interest. The Company is obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”) under ASC 810, Consolidation. The Company has not provided additional financial support to this entity which it is not contractually required to provide, and the Company does not have the ability to use the assets of TWO to settle obligations of the Company’s other subsidiaries.

The following provides a summary of TWO’s balance sheet as of September 30, 2020 and 2019, and summarized financial information for the years ended September 30, 2020, 2019 and 2018.

	September 30, 2020				September 30, 2019
Current assets (includes cash of $2,088 and $3,903)	$	4,016			$	6,324
Property, plant and equipment	1,145				2,186
Goodwill	2,206				2,206
Other non-current assets	—				3
Total liabilities	(1,324		)		(2,388		)

	Year Ended September 30,
	2020				2019				2018
Total revenues	$	5,944			$	10,633			$	15,526
Total operating expenses	(4,519		)		(8,732		)		(12,996		)
Income from operations	$	1,425			$	1,901			$	2,530

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”). The Frontier acquisition is a VIE because it has insufficient equity to finance its activities due to key assets being assigned to the Company upon acquisition.  The Company, is the primary beneficiary of Frontier because the Company has the power to direct the activities that most significantly affect Frontier’s economic performance. As the agreement to purchase the remaining interest was determined to be financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, the Company recognized a liability for the remaining 40% interest. Additionally, the Company fully consolidates Frontier as a VIE under ASC Topic No. 810, Consolidation. See Note 3, “Acquisitions and Divestitures” for further discussion of the Frontier acquisition.

The following provides a summary of Frontier’s balance sheet as of September 30, 2020, and summarized financial information for the fiscal year ended September 30, 2020.

	September 30, 2020
Current assets (includes cash of $1,675)	$	4,024
Property, plant and equipment	3,159
Goodwill	1,798
Intangible assets, net	9,918
Total liabilities	(3,692		)

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	Year Ended September 30,
	2020
Total revenues	$	5,365
Total operating expenses	(8,219		)
Loss from operations	$	(2,854	)

Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 is effective immediately and expires on December 21, 2022. The ASU allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. The Company is currently assessing the impact of adoption on the Company’s Consolidated Financial Statements and related disclosures.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which includes several amendments to clarify, conform or improve the Codification and make it easier to apply by eliminating inconsistencies and providing clarifications. The ASU includes seven different issues that describe the areas of improvement and the related amendments, which have various effective dates. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have an impact on its Consolidated Financial Statements.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses which clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. ASU 2018-19 will be effective for the Company for the quarter ending December 31, 2020, with early adoptions permitted. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have an impact on its Consolidated Financial Statements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. ASU 2018-18 should be applied retrospectively to the date of initial adoption of Topic 606 and is effective for the Company for the quarter ending December 31, 2020, with early adoption permitted. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have an impact on its Consolidated Financial Statements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-14 will be effective for the Company for the quarter ending December 31, 2020, with early adoption permitted. The Company is currently assessing the impact of adoption on the Company’s disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, amended in November 2019 (ASU 2019-11 and 2019-10), which requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit

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loss estimates which generally will result in the earlier recognition of allowances for losses. The Company adopted this standard on October 1, 2020 but noted that this adoption did not have an impact on its Consolidated Financial Statements.

Accounting Pronouncements Recently Adopted

The Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as of October 1, 2019, which simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance in order to improve consistent application of and simplify GAAP for other areas of Topic 740. This adoption did not have an impact on the Company’s Consolidated Financial Statements.

The Company adopted ASU 2018‑07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, as of October 1, 2019. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This adoption did not have an impact on the Company’s Consolidated Financial Statements.

The Company adopted ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as of October 1, 2019. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements and also made certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. This adoption did not have a material impact on the Company’s Consolidated Financial Statements.

The Company adopted ASU 2016-02, Leases (Topic 842), including associated ASUs related to Topic 842, as of October 1, 2019. ASU No. 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. Amendments to the standard were issued by the FASB in January, July and December 2018, and March 2019 including certain practical expedients, an amendment that provides an additional and optional transition method to adopt the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and certain narrow-scope improvements for lessors. The Company adopted this standard using a modified retrospective approach, applying the new standard to all leases existing at the date of initial adoption and the Company elected to apply the transition requirements at the October 1, 2019 effective date rather than the beginning of the earliest comparative period presented. As a result, the Company recorded a cumulative effect adjustment in the period of adoption, and prior periods were not restated and continue to be reported in accordance with historic accounting under ASC Topic No. 840. In addition, the Company has elected the package of practical expedients permitted under the transition guidance which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company elected to exclude short-term leases (term of 12 months or less) from the balance sheet and accounts for non-lease and lease components separately for all asset classes. The following table summarizes the impact of adoption to the Consolidated Balance Sheet as of October 1, 2019:

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	As Reported September 30, 2019				Impact of Adoption of ASU 2016-02				Updated October 1, 2019
Assets
Prepaid and other current assets	$	21,940			$	(73	)		$	21,867
Total current assets	637,293				(73		)		637,220
Property, plant and equipment, net	333,584				2,812				336,396
Operating lease right-of-use assets, net	—				42,073				42,073
Total Assets	1,737,848				44,812				1,782,660
Liabilities
Accrued expenses and other liabilities	101,839				13,596				115,435
Total current liabilities	322,221				13,596				335,817
Obligation under operating leases	—				29,308				29,308
Other non-current liabilities	78,661				3,245				81,906
Total non-current liabilities	1,049,805				32,553				1,082,358
Total liabilities	1,372,026				46,149				1,418,175
Shareholders' equity
Retained deficit	(174,976		)		(1,337		)		(176,313		)
Total Evoqua Water Technologies Corp. equity	362,759				(1,337		)		361,422
Total shareholder's equity	365,822				(1,337		)		364,485
Total liabilities and shareholders' equity	$	1,737,848			$	44,812			$	1,782,660

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy.

2020 Acquisitions

On September 3, 2020, the Company acquired the assets of privately held Aquapure Technologies of Cincinnati (“Aquapure”), a Hamilton, Ohio based water service and equipment company. Aquapure serves the commercial and light industrial markets and provides customers with a variety of water treatment products and services, including deionization, reverse osmosis, softeners and filtration systems. Aquapure is part of the Integrated Solutions and Services segment.

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”) for a purchase price of $10,885, which is net of working capital adjustments. Frontier is a pioneer in the development of patented, engineered equipment packages for high-rate treatment and removal of selenium, nitrate and other metals from complex water systems. During the year September 30, 2020, the Company incurred approximately $591 in acquisition costs, which are included in General and administrative expenses. Frontier is part of the Integrated Solutions and Services segment.

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The Company has entered into an agreement to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. This agreement (a) gives holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right may be exercised by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b) obligates the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Purchase Right may be exercised early by the Minority Owners. The agreement to purchase the remaining interest was determined to be financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, and as such, the Company recognized a liability for the remaining 40% interest.

The value of the Option was determined to be $506 using a Black Scholes model, and was included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

The value of the Purchase Right was determined to be $6,661, and was included within Other non‑current liabilities on the Consolidated Balance Sheets, based upon the enterprise value of Frontier upon the acquisition date as per ASC Topic 480, Distinguishing Liabilities From Equity. Pursuant to ASC Topic 480, the Company determined that this should be recorded as a liability and should be recognized at the fair value at the time of inception, adjusted for any consideration or unstated rights or privileges. The liability will be subsequently measured at an amount that would be paid on the reporting date with any change in value from the previous reporting date recognized as interest cost.

The opening balance sheet for Frontier is summarized as follows:

Current assets	$	3,186
Property, plant and equipment	2,963
Goodwill	1,798
Intangible assets	11,571
Total assets acquired	$	19,518
Liabilities related to Option and Purchase Right	(7,167		)
Other liabilities assumed	(1,466		)
Net assets acquired	$	10,885

2020 Divestitures

On December 31, 2019, the Company completed the previously-announced sale of the Memcor product line to DuPont de Nemours, Inc. (“DuPont”). The aggregate purchase price paid by DuPont in the Transaction was $110,000 in cash, subject to certain adjustments. Following adjustments for cash and net working capital, gross proceeds paid by DuPont were $131,011. During the year September 30, 2020, the Company recognized a $57,700 net pre-tax benefit on the sale of the Memcor product line, net of $8,300 of discretionary compensation payments to employees in connection with the transaction and $2,100 in transaction costs incurred. The Company utilized $100,000 of the proceeds from the transaction to repay a portion of the Company’s First Lien Term Loans in January 2020.

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The following represents the carrying amounts of assets and liabilities, by major class, classified as held for sale on the Consolidated Balance Sheets at September 30, 2019:

ASSETS
Cash and cash equivalents	$	7,291
Receivables, net	9,603
Inventories, net	6,456
Contract assets	13,025
Prepaid and other current assets	881
Current assets held for sale	37,256
Property, plant and equipment, net	14,827
Goodwill	14,911
Intangible assets, net	1,024
Other non-current assets	47
Non-current assets held for sale	30,809
Total assets held for sale	$	68,065
LIABILITIES
Accounts payable	$	5,646
Contract liabilities	1,302
Product warranties	3,264
Accrued expenses and other liabilities	3,996
Current liabilities held for sale	14,208
Product warranties	1,594
Other non-current liabilities	2,071
Non-current liabilities held for sale	3,665
Total liabilities held for sale	$	17,873

2019 Acquisitions

On May 25, 2019, the Company acquired all of the issued and outstanding equity securities of ATG UV Technology Limited (“ATG UV”), a leading manufacturer of ultraviolet (“UV”) light disinfection systems used in a wide range of municipal, aquatics and industrial applications, for £5,500 ($6,931) paid in cash at closing. During the year ended September 30, 2019, the Company incurred approximately $193 in acquisition costs, which are included in General and administrative expenses. ATG UV, based in Wigan, UK, is the exclusive technology supplier to Evoqua’s ETS-UV^TM product line in North America and the acquisition expands Evoqua’s reach, allowing the Company to serve customers globally. ATG UV is part of the Applied Product Technologies segment.

The opening balance sheet for ATG UV is summarized as follows:

Current assets	$	6,296
Property, plant and equipment	362
Goodwill	1,738
Intangible assets	2,277
Total assets acquired	$	10,673
Total liabilities assumed	(3,742		)
Net assets acquired	$	6,931

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Revenue Recognition

The Company recognizes sales of products and services based on the five-step analysis of transactions as provided in Topic 606. For all contracts with customers, the Company first identifies the contract which usually is established when the customer’s purchase order is accepted or acknowledged. Next the Company identifies the performance obligations in the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company then determines the transaction price in the arrangement and allocates the transaction price to each performance obligation identified in the contract. The Company’s allocation of the transaction price to the performance obligations are based on the relative standalone selling prices for the goods and services contained in a particular performance obligation. The transaction price is adjusted for the Company’s estimate of variable consideration which may include discounts if the Company would fail to meet certain performance requirements, volume discounts or early payment discounts. To estimate variable consideration, the Company utilizes historical experience and known terms. Variable consideration in contracts for the years ended September 30, 2020 and 2019 was insignificant.

For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or delivered to the customer as the Company has no obligation for installation. The Company considers shipping and handling services to be fulfillment activities and as such they do not represent separate performance obligations for revenue recognition. Sales of service arrangements are recognized as the services are performed.

For certain arrangements where there is significant customization to the product and for long-term construction-type sales contracts, revenue may be recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs. These arrangements include large capital water treatment projects, systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. In order for revenue to be recognized over a period of time, the product must have no alternative use and the Company must have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are not met, revenues from these contracts will not be recognized until construction is complete. Contract revenues and cost estimates are reviewed and revised quarterly at a minimum and the cumulative effect of such adjustments are recognized in current operations. The amount of such adjustments have not been material.

The Company has made accounting policy elections to exclude all taxes by governmental authorities from the measurement of the transaction price and that long-term construction-type sales contracts, or those contracts for products with significant customization that the total contract price is less than $100 will be recorded at the point in time when the construction is complete.

Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders of approximately $165,563 at September 30, 2020. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve months.

The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions. The Company’s costs incurred to obtain or fulfill a contract with a customer are classified as non-current assets and amortized to expense over the period of benefit of the related revenue. These costs are recorded within Cost of product sales and services. The amount of contract costs was insignificant at September 30, 2020.

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The Company offers standard warranties that generally do not represent a separate performance obligation. In certain instances, a warranty is obtained separately from the original equipment sale or the warranty provides incremental services and as such is treated as a separate performance obligation.

Disaggregation of Revenue

In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of revenue, reportable operating segment and geographical regions. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Information regarding the source of revenues:

	Year Ended September 30,
	2020				2019
Revenue from contracts with customers recognized under Topic 606	$	1,279,772			$	1,309,303
Other (1)	149,684				135,138
Total	$	1,429,456			$	1,444,441

(1)	Other revenue relates to revenue recognized from Topic 842 (previously Topic 840), Leases, mainly attributable to long term rentals.

Information regarding revenues disaggregated by source of revenue and segment is as follows:

	Year Ended September 30,
	2020												2019
	Integrated Solutions and Services				Applied Product Technologies				Total				Integrated Solutions and Services				Applied Product Technologies				Total
Revenue from capital projects	$	257,528			$	335,227			$	592,755			$	219,289			$	344,097			$	563,386
Revenue from aftermarket	119,051				128,051				$	247,102			122,719				165,056				$	287,775
Revenue from service	567,603				21,996				$	589,599			568,826				24,454				$	593,280
Total	$	944,182			$	485,274			$	1,429,456			$	910,834			$	533,607			$	1,444,441

Information regarding revenues disaggregated by geographic area is as follows:

	Year Ended September 30,
	2020				2019
United States	$	1,164,634			$	1,147,649
Europe	108,139				102,998
Asia	77,253				90,273
Canada	65,223				80,083
Australia	14,207				23,438
Total	$	1,429,456			$	1,444,441

Contract Balances

The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company receives payments from customers based on a billing schedule as established in its contracts.

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Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Change in contract assets and liabilities are due to the Company’s performance under the contract.

The tables below provides a roll-forward of contract assets and contract liabilities balances for the periods presented:

	Year Ended September 30,
Contract assets (a)	2020				2019
Balance at beginning of period	$	73,467			$	69,147
Cumulative effect of adoption of new accounting standards	—				(6,106		)
Recognized in current period	347,660				325,289
Reclassified to accounts receivable	(342,371		)		(302,055		)
Amounts related to sale of the Memcor product line	2,710				(13,025		)
Foreign currency	(707		)		217
Balance at end of period	$	80,759			$	73,467

(a)	Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.

	Year Ended September 30,
Contract Liabilities	2020				2019
Balance at beginning of period	$	39,051			$	17,652
Cumulative effect of adoption of new accounting standards	—				1,773
Recognized in current period	322,595				319,722
Amounts in beginning balance reclassified to revenue	(39,100		)		(20,754		)
Current period amounts reclassified to revenue	(295,085		)		(276,002		)
Amounts related to sale of the Memcor product line	(700		)		(1,302		)
Foreign currency	(502		)		(2,038		)
Balance at end of period	$	26,259			$	39,051

As of September 30, 2020 and 2019, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items.

The Company measures the fair value of pension plan assets and liabilities, deferred compensation and plan assets and liabilities on a recurring basis pursuant to ASC Topic 820. ASC Topic 820 establishes a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model‑derived valuations whose inputs are observable or whose significant value driver is observable.

Level 3: Unobservable inputs in which little or no market data is available, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s financial assets and liabilities at fair value. The fair values related to the pension assets are determined using net asset value (“NAV”) as a practical expedient, or by information categorized in

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the fair value hierarchy level based on the inputs used to determine fair value. The reported carrying amounts of deferred compensation assets and liabilities and debt approximate their fair values. The Company uses interest rates and other relevant information generated by market transactions involving similar instruments to fair value these assets and liabilities, therefore all are classified as Level 2 within the valuation hierarchy. For the years ended September 30, 2020 and 2019, there were no transfers between Level 1 and 2 of the fair value hierarchy.

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	Net Asset Value				Quoted Market Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
As of September 30, 2020
Assets:
Pension plan
Cash	$	—			$	15,061			$	—			$	—
Government Securities	4,924				—				—				—
Liability Driven Investment	3,604				—				—				—
Guernsey Unit Trust	1,881				—				—				—
Global Absolute Return	2,060				—				—				—
Deferred compensation plan assets
Trust Assets	—				55				—				—
Insurance	—				—				19,804				—
Foreign currency forward contracts	—				—				140				—
Liabilities:
Pension plan	—				—				(47,389		)		—
Deferred compensation plan liabilities	—				—				(21,439		)		—
Long‑term debt	—				—				(872,441		)		—
Interest rate swap	—				—				(4,669		)		—
Foreign currency forward contracts	—				—				(47		)		—
Earn-outs related to acquisitions	—				—				—				(295		)
Option and Purchase Right	—				—				—				(7,739		)
As of September 30, 2019
Assets:
Pension plan
Cash	$	—			$	14,607			$	—			$	—
Government Securities	4,703				—				—				—
Liability Driven Investment	3,261				—				—				—
Guernsey Unit Trust	997				—				—				—
Global Absolute Return	1,957				—				—				—
Deferred compensation plan assets
Trust Assets	—				16				—				—
Insurance	—				—				18,684				—
Interest rate cap	—				—				19				—
Foreign currency forward contracts	—				—				278				—
Liabilities:
Pension plan	—				—				(42,948		)		—
Deferred compensation plan liabilities	—				—				(21,318		)		—
Long‑term debt	—				—				(979,357		)		—
Foreign currency forward contracts	—				—				(154		)		—
Earn-outs related to acquisitions	—				—				—				(1,545		)

The pension plan assets and liabilities and deferred compensation assets and liabilities are included in other non-current assets and other non-current liabilities on the Consolidated Balance Sheets at September 30, 2020 and 2019.

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The Company records contingent consideration arrangements at fair value on a recurring basis and the associated balances presented as of September 30, 2020 and 2019 are earn-outs related to acquisitions. See Note 3, “Acquisitions and Divestitures” for further discussion regarding the earn-outs recorded for specific acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics. Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Consolidated Statements of Operations.

A rollforward of the activity in the Company’s fair value of earn-outs related to acquisitions is as follows:

	Current Portion (1)				Long-term Portion (2)				Total
Balance at September 30, 2018	$	770			$	1,146			$	1,916
Payments	(1,650		)		—				(1,650		)
Reclassifications	212				(212		)		—
Fair value increase	1,283				—				1,283
Foreign currency	(4		)		—				(4		)
Balance at September 30, 2019	$	611			$	934			$	1,545
Reclassifications	204				—				204
Payments	(187		)		—				(187		)
Fair value adjustment	(333		)		(934		)		(1,267		)
Balance at September 30, 2020	$	295			$	—			$	295

(1)	Included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.

(2)	Included in Other non‑current liabilities on the Consolidated Balance Sheets.

Accounts receivable are summarized as follows:

	September 30, 2020				September 30, 2019
Accounts Receivable	$	264,536			$	262,491
Allowance for Doubtful Accounts	(4,057		)		(4,906		)
Receivables, net	$	260,479			$	257,585

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The movement in the allowance for doubtful accounts was as follows:

	Year Ended September 30,
	2020				2019				2018
Balance at beginning of period	$	(4,906	)		$	(4,199	)		$	(3,494	)
Charged to costs and expenses	(537		)		(788		)		(1,832		)
Write-offs	1,277				39				1,387
Foreign currency and other	109				42				(260		)
Balance at end of period	$	(4,057	)		$	(4,906	)		$	(4,199	)

The major classes of inventory, net are as follows:

	September 30, 2020				September 30, 2019
Raw materials and supplies	$	78,319			$	75,223
Work in progress	15,654				14,741
Finished goods and products held for resale	56,435				58,223
Costs of unbilled projects	3,438				2,347
Reserves for excess and obsolete	(11,467		)		(13,370		)
Inventories, net	$	142,379			$	137,164

The following is the activity in the reserves for excess and obsolete inventory:

	Year Ended September 30,
	2020				2019				2018
Balance at beginning of period	$	(13,370	)		$	(9,313	)		$	(10,599	)
Additions charged to expense	(310		)		(5,754		)		(419		)
Write-offs	2,197				1,541				104
Foreign currency and other	16				156				1,601
Balance at end of period	$	(11,467	)		$	(13,370	)		$	(9,313	)

Property, plant, and equipment consists of the following:

	September 30, 2020				September 30, 2019
Machinery and equipment	$	357,650			$	316,390
Rental equipment	221,953				172,534
Land and buildings	70,245				64,165
Construction in process	48,325				40,599
	$	698,173			$	593,688
Less: accumulated depreciation	(333,712		)		(260,104		)
Property, plant, and equipment, net	$	364,461			$	333,584

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The Company entered into secured financing agreements that require providing a security interest in specified equipment. As of September 30, 2020 and September 30, 2019, the gross and net amounts of those assets are as follows:

	September 30, 2020								September 30, 2019
	Gross				Net				Gross				Net
Machinery and equipment	$	63,305			$	52,620			$	48,288			$	42,162
Construction in process	8,098				8,098				2,531				2,531
	$	71,403			$	60,718			$	50,819			$	44,693

Depreciation expense and maintenance and repairs expense for the years ended September 30, 2020, 2019 and 2018 were as follows:

	Year Ended September 30,
	2020				2019				2018
Depreciation expense	$	73,002			$	66,031			$	59,017
Maintenance and repair expense	$	20,303			$	23,861			$	23,343

Changes in the carrying amount of goodwill are as follows:

	Integrated Solutions and Services				Applied Product Technologies				Total
Balance at September 30, 2018	$	224,370			$	186,976			$	411,346
Business combinations and divestitures	—				1,738				$	1,738
Measurement period adjustments	(1,937		)		63				$	(1,874	)
Goodwill reclassified to assets held for sale	—				(14,911		)		$	(14,911	)
Foreign currency translation	(420		)		(2,989		)		$	(3,409	)
Balance at September 30, 2019	$	222,013			$	170,877			$	392,890
Business combinations and divestitures	2,723				(405		)		$	2,318
Measurement period adjustments	—				298				$	298
Foreign currency translation	(355		)		2,054				$	1,699
Balance at September 30, 2020	$	224,381			$	172,824			$	397,205

As of September 30, 2020 and 2019, $153,004 and $151,880, respectively, of goodwill is deductible for tax purposes.

The Company reviewed the recoverability of the carrying value of goodwill of its reporting units. As the fair value of the Company’s reporting units was determined to be in excess of the carrying values at July 1, 2020 and 2019, no further analysis was performed. The Company has concluded that none of the goodwill was impaired as of September 30, 2020, and there are no indicators of impairment through September 30, 2020.

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Intangible assets consist of the following:

			September 30, 2020
	Estimated Life (years)		Carrying Amount				Accumulated Amortization				Net
Amortizing intangible assets
Customer related	5 ‑ 26		$	292,316			$	(83,486	)		$	208,830
Proprietary technology	7 - 10		61,990				(30,886		)		$	31,104
Trademark	5 - 15		27,114				(9,142		)		$	17,972
Backlog	1		82,181				(82,181		)		$	—
Other	3		39,010				(21,156		)		$	17,854
Total amortizing intangible assets			$	502,611			$	(226,851	)		$	275,760
Indefinite‑lived intangible assets			34,207				—				$	34,207
Total intangible assets			$	536,818			$	(226,851	)		$	309,967

			September 30, 2019
	Estimated Life (years)		Carrying Amount				Accumulated Amortization				Net
Amortizing intangible assets
Customer related	5 ‑ 26		$	290,407			$	(64,548	)		$	225,859
Proprietary technology	10		50,725				(24,187		)		$	26,538
Trademark	10 - 15		26,432				(6,245		)		$	20,187
Backlog	1		81,834				(81,834		)		$	—
Other	3		22,868				(14,892		)		$	7,976
Total amortizing intangible assets			$	472,266			$	(191,706	)		$	280,560
Indefinite‑lived intangible assets			34,207				—				$	34,207
Total intangible assets			$	506,473			$	(191,706	)		$	314,767

The Company’s indefinite-lived intangible asset relate to Federal hazardous waste treatment management permits obtained for locations operated by the Integrated Solutions and Services segment. The permits are considered perpetually renewable. The Company performs an indefinite-lived intangible asset impairment analysis on an annual basis during the fourth quarter of the year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assessed the carrying value of the permits at the Integrated Solutions and Services segment as of July 1, 2020 using a quantitative analysis outlined in ASU No. 2012-02 to determine whether the existence of events or circumstances would lead to the conclusion that it is more likely than not that the fair values of the permits are less than the carrying amounts. Events and circumstances considered in this review included macroeconomic conditions, new competition, financial performance of the entities which utilizes the permits and other financial and non-financial events. Based on these factors, the Company concluded the fair value of the permits were not more likely than not less than the carrying amounts.

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For the amortizing intangible assets, the remaining weighted-average amortization period at September 30, 2020 was as follows:

	Years
Customer-related intangibles	10
Proprietary technology	5
Trademarks	7
Other	3
Aggregate net intangible assets	7

Intangible asset amortization was $34,266, $32,205 and $26,843 for the years ended September 30, 2020, 2019 and 2018, respectively. The estimated future amortization expense is as follows:

2021	$	34,469
2022	34,241
2023	30,728
2024	24,505
2025	19,940
Thereafter	131,877
Total	$	275,760

Long‑term debt consists of the following:

	September 30, 2020				September 30, 2019
First Lien Term Loan, due December 20, 2024	$	819,276			$	928,753
Equipment Financing, due September 30, 2023 to July 5, 2029, interest rates ranging from 3.59% to 8.07%	63,918				45,960
Notes Payable, due July 31, 2023	611				807
Mortgage, due June 30, 2028	1,665				1,635
Total debt	$	885,470			$	977,155
Less unamortized discount and lender fees	(9,436		)		(12,138		)
Total net debt	$	876,034			$	965,017
Less current portion	(14,339		)		(13,418		)
Total long‑term debt	$	861,695			$	951,599

Term Facilities and Revolving Credit Facility

On January 15, 2014, EWT Holdings III Corp. (“EWT III”), an indirect wholly-owned subsidiary of the Company, entered into a First Lien Credit Agreement and Second Lien Credit Agreement (the “Credit Agreements” or, after the prepayment and termination of the Second Lien Credit Agreement, the “First Lien Credit Agreement” or “Credit Agreement”) among EWT III, EWT Holdings II Corp., the lenders party thereto and Credit Suisse AG as administrative agent and collateral agent. The First Lien Credit Agreement provided for a seven-year term loan facility, and the Second Lien Credit Agreement provided for an eight-year term loan facility. The term loan facilities originally consisted of the “First Lien Term Loan” and “Second Lien Term Loan” in aggregate principal amounts of $505,000 and $75,000, respectively. The First Lien Credit Agreement also made available to the Company a $75,000 revolving credit facility (the “Revolver”), which provided for a

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letter of credit sub-facility up to $35,000. During the year ended September 30, 2018, certain subsidiaries of the Company entered into two amendments to the Credit Agreement which provided for, among other things, the refinancing of the Existing Term Loans with the proceeds of refinancing term loans, extension of the maturity date to December 20, 2024, the reduction in the interest rate spreads on the Term Loan borrowing to 3.00% and an additional $150,000 borrowed in incremental term loans. In addition, the revolving credit commitment and letters of credit sublimit were increased to $125,000 and $45,000, respectively. The other terms of the Existing Credit Agreement, including rates, remain generally the same. As a result of the incremental borrowings, quarterly principal payments increased to $2,369. At September 30, 2019, the interest rate on borrowings was 5.11%, comprised of 2.11% LIBOR plus the 3.00% spread.

In January 2020, the Company utilized $100,000 of the proceeds from the sale of the Memcor product line to repay a portion of the Company’s First Lien Term Loans. As a result of the prepayment, the Company wrote off $1,795 of deferred financing fees during the three months ended March 31, 2020. On February 18, 2020, EWT III entered into Amendment No. 7 (the “Amendment”), among EWT III, as the borrower, EWT Holdings II Corp, as parent guarantor, the subsidiary guarantors party thereto, the financial institutions party thereto, and Credit Suisse AG, as administrative agent and collateral agent, relating to the Credit Agreement. As a result of the Amendment, the Company incurred $760 of fees which were recorded as deferred financing fees on the Consolidated Balance Sheets. Prior to the Amendment, First Lien Term Loans in an aggregate principal amount of approximately $826,000 (the “Existing Term Loans”) were outstanding under the Credit Agreement. Pursuant to the Amendment, the Existing Term Loans were refinanced. Additionally, the Amendment amended the Credit Agreement to, among other things:

(i)	reduce the interest rate spread applicable to term loans based on LIBOR from (A) 2.75% to 2.50% per annum during any period during which EWT III maintains a public corporate family rating better than or equal to B1 from Moody’s and B+ from S&P, in each case with a stable outlook (a “Ratings Condition Period”), and (B) 3.00% to 2.75% per annum for any period other than a Ratings Condition Period;

(ii)	reduce the interest rate spread applicable to term loans based on the Base Rate from (A) 1.75% to 1.50% per annum during any Ratings Condition Period and (B) 2.00% to 1.75% per annum during any period other than a Ratings Condition Period;

(iii)	remove the 1.00% floor for term loans based on LIBOR and the 2.00% floor for term loans based on the Base Rate;

(iv)	schedule existing indebtedness and investments, allowing EWT III and its subsidiaries to incur incremental indebtedness and make incremental investments under the applicable baskets;

(v)	increase the generally permitted investments basket; and

(vi)	extend the 1.00% prepayment premium for refinancing in connection with certain repricing transactions through August 18, 2020.

The Company makes quarterly principal payments of $2,369. At September 30, 2020, the interest rate on borrowings was 2.91%, comprised of 0.16% LIBOR plus the 2.75% spread.

Total deferred fees related to the First Lien Term Loan are $9,436 and $12,138, net of amortization, as of September 30, 2020 and September 30, 2019, respectively. These fees are included as a contra liability to debt on the Consolidated Balance Sheets.

The following summarizes the Company’s outstanding borrowings under the Revolver and outstanding letters of credit as of September 30, 2020 and September 30, 2019, respectively.

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	September 30, 2020				September 30, 2019
Borrowing availability under the Revolver	$	125,000			$	125,000
Outstanding borrowings under the Revolver	—				—
Outstanding letters of credit under the Revolver	12,963				12,956
Unused amounts under the Revolver	$	112,037			$	112,044
Additional letters of credit under a separate arrangement	$	52			$	204

  The First Lien Credit Agreement contains limitations on incremental borrowings, is subject to leverage ratios and allows for optional prepayments. Under certain circumstances, the Company may be required to remit excess cash flows as defined based upon exceeding certain leverage ratios. The Company did not exceed such ratios during the year ended September 30, 2020, does not anticipate exceeding such ratios during the year ending September 30, 2021, and therefore does not anticipate any additional repayments during the year ending September 30, 2021.

Repayment Schedule

Aggregate maturities of all long‑term debt, including current portion of long‑term debt and excluding finance lease obligations as of September 30, 2020, are presented below:

Year Ended September 30,
2021	$	16,451
2022	16,763
2023	17,043
2024	15,500
2025	788,844
Thereafter	30,869
Total	$	885,470

Interest Rate Risk Management

The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit facilities, which bear interest at rates that are indexed against LIBOR. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates. To accomplish these objectives, the Company entered into an interest rate swap during the third quarter of fiscal 2020 to mitigate risks associated with its variable rate debt. The interest rate swap is effective June 30, 2020, has a term of five years to hedge the variability of interest payments on the first $500,000 of the Company’s senior secured debt and fixes the LIBOR rate on this portion of the senior secured debt at 0.55%. The interest rate swap has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of Accumulated other comprehensive loss on the Consolidated Balance Sheets. As interest payments are made, the realized gain or loss on the payments are recorded in Interest expense on the Consolidated Statements of Operations.

In addition, the Company entered into an interest rate cap, designated as a cash flow hedge, to mitigate risks associated with variable rate debt effective November 28, 2018. The Company terminated the interest rate cap during the third quarter of 2020. The LIBOR interest rate cap covered a notional amount of $600,000 of the Company’s senior secured debt, was effective for a period of three years and had a strike rate of 3.5%. Interest rate caps designated as cash flow hedges involve the receipt of stipulated amounts from a counterparty if interest rates rise above the strike rate defined in the contract. The premium paid for the interest rate cap was $2,235 and was being amortized to interest expense over its three-year term

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using the caplet method. As a result of the termination, the derivative was de-designated from hedge accounting and the Company wrote off the remaining unamortized premium of $1,118 to interest expense. No additional fees were incurred. The unamortized premium was $1,614 at September 30, 2019, of which $745 was included in Prepaid and other current assets and the remaining $869 was included in Other non‑current assets. The Company recorded $496 and $621 of premium amortization to interest expense during the years ended September 30, 2020 and 2019, respectively.

Foreign Currency Risk Management

The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency risk from transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). To mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company is also subject to currency translation risk associated with converting the foreign operations’ financial results into U.S. dollars. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of September 30, 2020, the notional amount of the forward contracts held to sell foreign currencies was $5,542.

Credit Risk Management

The counterparties to the Company’s derivative contracts are highly rated financial institutions. The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant failure of any counterparties to perform under any agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.

Derivatives Designated as Cash Flow Hedges

The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and Hedging” (Topic No. 815). As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. The Company’s interest rate cap is valued based on readily observable market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in the Consolidated Statements of Operations. The Company recorded no hedge ineffectiveness during the year ended September 30, 2020. The Company does not use derivative financial instruments for trading or speculative purposes.

The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:

			Asset Derivatives
	Balance Sheet Location		September 30, 2020				September 30, 2019
Interest rate cap	Prepaid and other current assets		$	—			$	19
Foreign currency forward contracts	Prepaid and other current assets		$	133			$	269

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			Liability Derivative
	Balance Sheet Location		September 30, 2020				September 30, 2019
Interest rate swap	Accrued expenses and other current liabilities		$	4,669			$	—
Foreign currency forward contracts	Accrued expenses and other current liabilities		$	47			$	154

The following represents the amount of (loss) gain recognized in AOCI (net of tax) during the periods presented:

	Year Ended September 30,
	2020				2019				2018
Interest rate swap	$	(5,155	)		$	—			$	—
Interest rate cap	(19		)		19				—
Foreign currency forward contracts	(201		)		(443		)		(118		)
	$	(5,375	)		$	(424	)		$	(118	)

The following represents the amount of (loss) gain reclassified from AOCI into earnings (effective portion) during the periods presented:

			Year Ended September 30,
	Location of (Loss) Gain		2020				2019				2018
Foreign currency forward contracts	Cost of product sales and services		$	(8	)		$	(309	)		$	(76	)
Foreign currency forward contracts	General and administrative expense		(192		)		82				18
Foreign currency forward contracts	Selling and marketing expense		28				—				—
Foreign currency forward contracts	Research and development expense		—				(271		)		(39		)
Interest rate swap	Interest expense		(486		)		—				—
			$	(658	)		$	(498	)		$	(97	)

Based on the fair value amounts of the Company’s cash flow hedges at September 30, 2020, the Company expects that approximately $97 of pre-tax net gains will be reclassified from AOCI into earnings during the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle.

Derivatives Not Designated as Cash Flow Hedges

The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods presented:

			Asset Derivative
	Balance Sheet Location		September 30, 2020				September 30, 2019
Foreign currency forward contracts	Prepaid and other current assets		$	7			$	9

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The Company accrues warranty obligations associated with certain products as revenue is recognized. Provisions for the warranty obligations are based upon historical experience of costs incurred for such obligations, adjusted for site‑specific risk factors and as necessary, for current conditions and factors. There are significant uncertainties and judgments involved in estimating warranty obligations, including changing product designs, differences in customer installation processes and future claims experience which may vary from historical claims experience.

A reconciliation of the activity related to the accrued warranty, including both the current and long‑term portions, is as follows:

	Current Product Warranties												Non-Current Product Warranties
	Year Ended September 30,												Year Ended September 30,
	2020				2019				2018				2020				2019				2018
Balance at beginning of the period	$	4,922			$	8,907			$	11,164			$	2,332			$	3,360			$	6,110
Warranty provision for sales	4,738				5,745				4,930				701				1,915				654
Settlement of warranty claims	(4,890		)		(6,529		)		(6,836		)		(1,170		)		(999		)		(3,132		)
Foreign currency translation and other	550				63				(351		)		(274		)		(350		)		(272		)
Amounts related to sale of the Memcor product line	795				(3,264		)		—				135				(1,594		)		—
Balance at end of the period	$	6,115			$	4,922			$	8,907			$	1,724			$	2,332			$	3,360

To better align its resources with its growth strategies and reduce the cost structure, the Company commits to restructuring plans as necessary. The Company has undertaken various restructuring initiatives, including the wind-down of the Company’s operations in Italy, restructuring of the Company’s operations in Australia, consolidation of functional support structures on a global basis, and consolidation of the Singaporean research and development center.

Beginning in the second quarter of fiscal 2020, and following the sale of the Memcor product line, the Company undertook activities to reduce the cost structure and rationalize location footprint. The Company currently expects to incur approximately $3,000 to $5,000 of costs through the remainder of fiscal 2021 related to these initiatives.

On October 30, 2018, the Company announced a transition from a three-segment structure to a two-segment operating model designed to better serve the needs of customers worldwide. This new structure was effective October 1, 2018 and combined the Municipal services business with the former Industrial segment into a new segment, Integrated Solutions and Services, a group entirely focused on engaging directly with end users. The former Products segment and Municipal products businesses have been combined into a new segment, Applied Product Technologies, which is focused on developing product platforms to be sold primarily through third party channels. The Company currently expects to incur approximately $1,000 of cash costs through fiscal 2021 as a result of this transition related to other non-employee related business optimizations.

During the year ended September 30, 2017, the Company initiated a Voluntary Separation Plan (“VSP”) that continued throughout the year ended September 30, 2018 and concluded during the six months ended March 31, 2018. The VSP plan included severance payments to employees as a result of streamlining business operations for efficiency, elimination of redundancies, and reorganizing business processes.

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The table below sets forth the amounts accrued for the restructuring components and related activity:

	Year Ended September 30,
	2020				2019				2018
Balance at beginning of the period	$	655			$	710			$	3,542
Restructuring charges following the sale of the Memcor product line	8,274				—				—
Restructuring charges related to two-segment realignment	2,092				11,090				—
Restructuring charges related to other initiatives (including VSP)	1,867				2,444				11,085
Release of prior reserves	(98		)		(541		)		(663		)
Write-off charges	(2,461		)		—				—
Cash payments	(9,367		)		(12,966		)		(13,280		)
Other adjustments	8				(82		)		26
Balance at end of the period	$	970			$	655			$	710

The balances for accrued restructuring liabilities at September 30, 2020 and 2019, are recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Restructuring charges represent severance charges, inventory write-offs and consulting fees.

The table below sets forth the location of amounts recorded above on the Consolidated Statements of Operations:

	Year Ended September 30,
	2020				2019				2018
Cost of product sales and services	$	8,305			$	6,257			$	3,897
General and administrative expense	3,053				5,531				4,775
Sales and marketing expense	305				1,082				908
Research and development expense	23				123				606
Other operating expense, net	449				—				236
	$	12,135			$	12,993			$	10,422

Defined Benefit Plans    

The Company maintains multiple employee benefit plans.

Certain of the Company’s employees in the UK were participants in a Siemen’s defined benefit plan established for employees of a UK-based operation acquired by Siemens in 2004. The plan was frozen with respect to future service credits for active employees, however the benefit formula recognized future compensation increases. The Company agreed to establish a replacement defined benefit plan, with the assets of the Siemens scheme transferring to the new scheme on April 1, 2015.

The Company’s employees in Germany also participate in a defined benefit plan. Assets equaling the plan’s accumulated benefit obligation were transferred to a German defined benefit plan sponsored by the Company upon the acquisition of EWT from Siemens. The German entity also sponsors a defined benefit plan for a small group of employees located in France.

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The changes in projected benefit obligations, plan assets and the funded status of the UK and German defined benefit plans as of and for the years ended September 30, 2020 and 2019, respectively, are as follows:

	2020				2019
Change in projected benefit obligation
Projected benefit obligation at prior year measurement date	$	42,948			$	35,541
Service cost	1,125				898
Interest cost	492				699
Actuarial losses	5				8,056
Benefits paid from company assets	(173		)		(139		)
Plan amendment	—				113
Foreign currency exchange impact	2,992				(2,220		)
Projected benefit obligation at measurement date	$	47,389			$	42,948
Change in plan assets
Fair value of assets at prior year measurement date	25,525				24,583
Actual return on plan assets	205				2,269
Benefits paid	(60		)		(48		)
Employer contribution	255				175
Foreign currency exchange impact	1,605				(1,454		)
Fair value of assets at measurement date	$	27,530			$	25,525
Funded status and amount recognized in assets and liabilities	$	(19,859	)		$	(17,423	)
Amount recognized in assets and liabilities
Other non‑current assets	$	2,831			$	2,655
Other non‑current liabilities	$	(22,690	)		$	(20,078	)
Amount recognized in accumulated other comprehensive loss, before taxes
Actuarial loss	$	11,235			$	11,251

The following table provides summary information for the German plan where the projected benefit obligation and accumulated benefit obligation are in excess of plan assets:

	September 30, 2020				September 30, 2019
Projected benefit obligation	$	47,389			$	42,948
Accumulated benefit obligation	$	25,489			$	22,469
Fair value of plan assets	$	27,530			$	25,525

The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year indicated as well as net periodic pension cost for the following year. The discount rate is based on settling the obligation with high grade, high yield corporate bonds, and the rate of compensation increase is based upon actual experience. The expected return on assets is based on historical performance as well as expected future rates of return on plan assets considering the current investment portfolio mix and the long‑term investment strategy.

	2020		2019
Discount rate	0.80% - 1.97%		0.80% - 1.97%
Expected long‑term rate of return on plan assets	1.98% - 2.40%		0.90% - 1.98%
Salary scale	2.25% - 4.44%		2.25% - 4.44%
Pension increases	1.00% - 2.99%		1.00% - 3.38%

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The Plan trustees for the UK and German pension plans have established investment policies and strategies. The UK Pension Committee established and implemented a liability driven investment approach to take advantage of, and seeking to protect, its well‑funded status. The current German investment strategy is to maintain cash reserves.

Through a trust arrangement, the German plan assets are held in cash at a German bank.

The actual overall asset allocation for the UK pension plan as compared to the investment policy goals as of September 30, 2020 was as follows by asset category:

	2020 Actual			2020 Target
Equity	23.5	%		—	%
Index‑linked gilts	76.5	%		70	%
Cash	—	%		—	%

Pension expense for the German and UK plans were as follows:

	Year Ended September 30,
	2020				2019				2018
Service cost	$	1,125			$	898			$	933
Interest cost	492				699				742
Expected return on plan assets	(387		)		(440)				(470)
Amortization of actuarial losses	1,006				371				299
Pension expense for defined benefit plans	$	2,236			$	1,528			$	1,504

The components of pension expense, other than the service cost component which is included in General and administrative expense, are included in the line item Other operating expense in the Consolidated Statements of Operations.

Benefits expected to be paid to participants of the plans are as follows:

Year Ended September 30,
2021	$	380
2022	542
2023	515
2024	613
2025	716
Five years thereafter	6,249
Total	$	9,015

Defined Contribution Plans    

The Company maintains a defined contribution 401(k) plan, which covers all U.S.-based employees who meet minimum age and length of service requirements. Plan participants can elect to defer pre-tax compensation through payroll deductions. These deferrals are regulated under Section 401(k) of the Internal Revenue Code. The Company matches 100% of eligible participants’ deferrals that do not exceed 6% of their pay (subject to limitations imposed by the Internal Revenue Code). The Company’s matching contributions were $14,243, $14,533 and $12,955 for the years ended September 30, 2020, 2019 and 2018, respectively.

Employees in the UK and Germany also participate in a defined contribution plan maintained by the Company. For the years ended September 30, 2020, 2019 and 2018, contributions made to the Company’s plan in the UK and Germany were $1,021, $796 and $707, respectively.

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Deferred Compensation

On April 1, 2014, the Company adopted a non-qualified deferred compensation plan for certain highly compensated employees. The Plan matches on a dollar-for-dollar basis, up to the first 6% of a participants’ pay. The Company’s obligation under the plan represents an unsecured promise to pay benefits in the future. In the event of bankruptcy or insolvency of the Company, assets of the plan would be available to satisfy the claims of general creditors. To increase the security of the participants’ deferred compensation plan benefits, the Company has established and funded a grantor trust (known as a rabbi trust). The rabbi trust is specifically designed so that assets are available to pay plan benefits to participants in the event the Company is unwilling or unable to pay the plan benefits for any reason other than bankruptcy or insolvency. As a result, the Company is prevented from withdrawing or accessing assets for corporate needs. Plan participants choose to receive a return on their account balances equal to the return on the various investment options. The rabbi trust assets are primarily invested in mutual funds and insurance contracts of which the rabbi trust is the owner and beneficiary.

Health Benefit Plan

The Company maintains a qualified employee health benefit plan in the U.S. and is self‑funded by the Company with respect to claims up to a certain amount. The plan requires contributions from eligible employees and their dependents.

For financial reporting purposes, income (loss) before income taxes includes the following components:

	Year Ended September 30,
	2020				2019				2018
Domestic	$	81,276			$	(9,140	)		$	(8,613	)
Foreign	40,490				10,256				17,879
Income before income taxes	$	121,766			$	1,116			$	9,266

The components of income tax (expense) benefit were as follows:

	Year Ended September 30,
	2020				2019				2018
Current:
Federal	$	—			$	—			$	—
State	(591		)		(400		)		(911		)
Foreign	(8,014		)		(7,239		)		(6,703		)
	$	(8,605	)		$	(7,639	)		$	(7,614	)
Deferred:
Federal	115				(3,597		)		6,311
State	401				196				(209		)
Foreign	718				1,453				130
	$	1,234			$	(1,948	)		$	6,232
Total income tax expense	$	(7,371	)		$	(9,587	)		$	(1,382	)

For the years ended September 30, 2020 and September 30, 2019, the U.S. federal statutory rate was 21.0% and for the year ended September 30, 2018, the U.S. federal statutory rate was 24.5% a blended rate based upon the number of days in fiscal 2018 that the company was taxed at the former statutory rate of 35.0% and the number of days that it was taxed at the new rate of 21.0%.

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A reconciliation of income tax (expense) benefit and the amount computed by applying the applicable statutory rate to income from operations before income taxes was as follows:

	Year Ended September 30,
	2020				2019				2018
Income tax (expense) benefit at the federal statutory rate of 21%	$	(25,571	)		$	(234	)		$	(2,270	)
State and local income taxes, net of federal tax benefit	(74		)		(204		)		(1,053		)
Foreign tax rate differential	(1,129		)		(1,471		)		(2,389		)
Nondeductible transaction costs	—				—				(1,489		)
Nondeductible interest expense	(1,032		)		(1,073		)		(853		)
Meals and entertainment expense	(760		)		(953		)		(553		)
U.S. tax on foreign earnings	(8,438		)		(1,421		)		—
Nondeductible legal expenses	—				(112		)		—
Other nondeductible expenses	(479		)		(223		)		(47		)
Impact of tax rate changes	286				(548		)		3,626
Valuation allowances	19,013				(3,886		)		(4,218		)
Share-based compensation in excess of accounting	4,931				475				5,156
Non-taxable gain on sale of subsidiary	4,789				—				1,131
Return-to-provision adjustments	516				(655		)		449
Non-controlling interest	(466		)		221				428
Net benefit of foreign R&D expenses	18				191				336
Transaction related contingent liabilities	143				(58		)		89
Contingent liabilities - warranty	—				93				—
Foreign withholding taxes	—				369				—
Non-deductible exchange gain or loss	—				(587		)		—
Deferred tax adjustments	491				2,016				—
Accrued tax adjustments	(6		)		(1,348		)		—
Tax benefits of other comprehensive income	—				(154		)		—
Other	397				(25		)		275
Total	$	(7,371	)		$	(9,587	)		$	(1,382	)

Annual Tax (Expense) Benefit

For the year ended September 30, 2020, actual tax expense differed from tax expense based on the U.S. federal statutory tax rate principally due to; the impact of the gain on the sale of the Memcor product line, which did not generate significant tax expense due to the combination of the U.S. valuation allowance and favorable foreign tax regimes; U.S. income not attracting net tax due to the valuation allowance; and the favorable impact of the reversal of a portion of the deferred tax liabilities related to indefinite lived intangibles.

For the year ended September 30, 2020, the Company provided tax expense of $7,371 as compared to expense of $9,587 for the fiscal year ended September 30, 2019. The decrease in expense was primarily the result of the favorable impact on deferred tax liabilities related to indefinite lived intangibles, a portion of which were reversed in relation to the sale of the Memcor product line.

For the year ended September 30, 2019, the Company provided tax expense of $9,587 as compared to expense of $1,382 in the fiscal year ended September 30, 2018. This increase in expense was primarily the result of the favorable impact included in the prior year of the reduction of the U.S. federal tax rate, which required the remeasurement of U.S. deferred

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tax liabilities associated with indefinite lived intangible assets, and the favorable impact of acquisitions for which the acquired deferred tax liabilities generated a reduction in the amount of valuation allowance required against the Company’s existing U.S. and state deferred tax assets.

Significant components of deferred tax assets and liabilities were as follows:

	September 30, 2020				September 30, 2019
Deferred Tax Assets
Receivable allowances	$	856			$	1,018
Reserves and accruals	24,141				24,473
Inventory valuation and other assets	4,617				4,989
Investment in partnership	1,592				2,569
Unrealized foreign exchange gains (losses), including related hedges	5,332				6,730
Other deferred taxes	3,474				897
Disallowed interest	—				7,096
Net operating loss carryforwards	29,407				49,786
Gross deferred tax assets	$	69,419			$	97,558
Less: Valuation allowance	(23,298		)		(41,084		)
Deferred tax assets less valuation allowance	$	46,121			$	56,474
Deferred Tax Liabilities
Goodwill	(6,579		)		(9,801		)
Fixed assets	(32,136		)		(38,293		)
Intangibles	(15,509		)		(15,720		)
Other deferred tax liabilities	(1,427		)		(3,418		)
Gross deferred tax liabilities	$	(55,651	)		$	(67,232	)
Net deferred tax liabilities	$	(9,530	)		$	(10,758	)

Accounting standards require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This assessment requires significant judgment, and in making this evaluation, the Company considers all available positive and negative evidence, including the potential to carryback net operating losses and credits, the future reversal of certain taxable temporary differences, actual and forecasted results, and tax planning strategies that are both prudent and feasible. A significant piece of objective evidence evaluated was the cumulative income or loss incurred over the three‑year period ended September 30, 2020. The Company was in a three-year cumulative loss at September 30, 2019 but is no longer in a three-year cumulative loss position at September 30, 2020, primarily due to the sale of the Memcor business. Emerging from a three-year cumulative loss is positive evidence. However, the Company believes the favorable evidence of the first year not in a three-year cumulative loss is outweighed by the significant global economic uncertainty due to the COVID-19 health crisis.

After considering all available evidence, both positive and negative, management determined that a valuation allowance was necessary in certain jurisdictions. As of September 30, 2020, the company maintains a full valuation allowance against its deferred tax assets (excluding certain deferred tax liabilities including those related to indefinite lived intangibles) in the U.S., Germany, and the UK. A partial valuation allowance is maintained in the Netherlands related to deferred tax assets generated prior to the Magneto acquisition as well as certain credits that are not expected to be realized.

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A reconciliation of the valuation allowance on deferred tax assets is as follows:

	Year Ended September 30,
	2020				2019				2018
Valuation allowance beginning of period	$	41,084			$	36,683			$	48,573
Change in assessment	1,650				(865		)		—
Current year operations	(19,856		)		3,495				(1,435		)
Foreign currency and other	3,012				2,254				71
Acquisitions / Dispositions	(2,592		)		(483		)		(10,526		)
Valuation allowance end of period	$	23,298			$	41,084			$	36,683

The Company does not anticipate that it will dispose any of its foreign subsidiaries in the foreseeable future and as such has not recorded a U.S. deferred tax asset where the tax basis exceeds the financial reporting basis of these investments. Additionally, the Company has not provided a U.S. deferred tax liability on the excess of financial reporting over tax basis of its investments.

As of September 30, 2020, 2019 and 2018, undistributed earnings of non-U.S. affiliates were approximately $53,766, $49,480 and $36,879, respectively, which are considered to be indefinitely reinvested. Upon distribution of these earnings the Company may be subject to U.S. income taxes and foreign withholding taxes. The amount of taxes that may be payable on remittance of these earnings is dependent on the tax laws and profile of the Company at that time and the availability of foreign tax credits in the year in which such earnings are remitted. Therefore, it is not practicable to estimate the amount of taxes that may be payable when these earnings are remitted in the future.

The Company utilizes the more-likely-than-not standard in recognizing a tax benefit in its financial statements. For the years ended September 30, 2020, 2019, 2018 and the Company had unrecognized tax benefits of $1,050, $1,075, and $0 respectively.

The following is a reconciliation of the Company’s total gross unrecognized tax benefits:

	Year Ended September 30,
	2020				2019				2018
Balance as of beginning of period	$	1,075			$	—			$	—
Tax positions related to the current year
Additions	—				—				—
Tax positions related to prior years
Additions	—				1,075				—
Reductions	(25		)		—				—
Expiration of statutes of limitations	—				—				—
Balance as of end of period	$	1,050			$	1,075			$	—

At September 30, 2020, 2019, and 2018, the Company had $1,288, $1,170, and $0 classified as a current liability respectively. The amount of unrecognized tax benefits is not expected to change significantly during the next 12 months. At September 30, 2020, 2019, and 2018, if the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the amount that would affect the Company’s effective tax rate was approximately $1,288, $1,170, and $0 respectively.

The Company classifies interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as component of income tax (expense) benefit. For the years ended September 30, 2020, 2019, and 2018 the Company recognized approximately $(143), $(95), and $0 of gross interest and penalties, respectively.

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Tax attributes available to reduce future taxable income begin to expire as follows:

	September 30, 2020				First year of Expiration
Federal net operating loss	$	105,828			September 30, 2035
State net operating loss	66,206				September 30, 2019
Foreign net operating loss	1,770				September 30, 2023
Foreign net operating loss (Germany, Singapore, and the UK)	18,467				Indefinite

During the fourth quarter of the year ending September 30, 2020 the Company undertook a secondary offering. As a result of that offering, the Company experienced an ownership change for purposes of I.R.C. Section 382. There was no impact to current or deferred tax expense resulting from the ownership change for the year ending September 30, 2020.

The Company is subject to audit in the U.S. as well as various states and foreign jurisdictions. The following table summarizes the Company’s earliest open tax years by major jurisdiction as of September 30, 2020:

Jurisdiction		Open Tax Years
United States		2017-2020
Australia		2016-2020
Canada		2016-2020
China		2015-2019
Germany		2016-2020
Netherlands		2015-2020
Singapore		2016-2020
United Kingdom		2018-2020

Effects of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (the Tax Act) introduced new provisions that were effective January 1, 2018 and changed how certain provisions are calculated beginning with the year ended September 30, 2018. These provisions included additional limitations on the deduction of certain expenses, a limitation on the current deductibility of net interest expense in excess of 30% of adjusted taxable income, a limitation on the use of net operating losses generated after fiscal 2018 to 80% taxable income, and an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties. These new provisions did not have a material impact to the Company’s tax expense. Amounts recorded where accounting is complete principally related to the reduction of the U.S. Corporate income tax rate to 21% which resulted in the Company reporting income tax benefit of $3,641 to remeasure deferred tax liabilities associated with indefinite lived intangible assets that will reverse at the new 21% rate. Absent this deferred tax liability, the Company is in a net deferred tax asset position that is fully offset by a valuation allowance. Though the tax effected net deferred tax asset changed, the movement was offset by movement in the valuation allowance with a net tax effect of $0.    

The Tax Act also created a provision known as GILTI that imposes a tax on certain earnings of foreign subsidiaries. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has no provided any deferred tax impacts of GILTI in its Consolidated Financial Statements for the year ended September 30, 2018.

The Company designs equity compensation plans to attract and retain employees while also aligning employees’ interests with the interests of the Company’s shareholders. In addition, members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the Company’s Board.

The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”)

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shortly after the acquisition date of January 16, 2014. The plan allows certain management employees and the Board to purchase shares in Evoqua Water Technologies Corp. Under the Stock Option Plan, the number of shares available for award was 11,083. As of September 30, 2020, there were approximately 2,149 shares available for future grants, however, the Company does not currently intend to make additional grants under the Stock Option Plan.

In connection with the IPO, the Board adopted and the Company’s shareholders approved the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (or the “Equity Incentive Plan”), under which equity awards may be granted in the form of options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock). Upon adoption of the Equity Incentive Plan, 5,100 shares of common stock of the Company were reserved for issuance thereunder. On February 18, 2020, the Company’s shareholders approved the amendment and restatement of the Equity Incentive Plan in order to increase the number of shares of common stock reserved for issuance thereunder by 5,000 shares and incorporate other changes. As of September 30, 2020, there were approximately 6,025 shares available for grants under the Equity Incentive Plan.

In addition to the establishment of the Equity Incentive Plan, in connection with the IPO, the Company entered into RSU agreements with each of the executive officers and certain other key members of management. Pursuant to the RSU agreements, recipients received, in the aggregate 1,197 stock-settled RSUs, the aggregate value of which equals $25,000. The RSU’s vested and settled in full upon the second anniversary of the IPO on November 2, 2019, resulting in the issuance of 1,158 shares, 419 of which were deposited into treasury in satisfaction of withholding tax obligations resulting from the vesting of the RSUs.

Option awards are granted at various times during the year, vest ratably at 25% per year, and are exercisable at the time of vesting. The options granted have a contractual term of ten years.

    A summary of the stock option activity for the years ended September 30, 2020 and 2019 is presented below:

(In thousands, except per share amounts)	Options			Weighted Average Exercise Price/Share				Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at September 30, 2018	8,973			7.57				6.9 years
Granted	1,114			12.74
Exercised	(930	)		5.22
Forfeited	(511	)		12.43
Cancelled	(27	)		20.88
Expired	—			—
Outstanding at September 30, 2019	8,619			$	8.15			6.3 years		$	80,826
Granted	823			$	23.52
Exercised	(1,834	)		$	5.62
Forfeited	(172	)		$	15.54
Cancelled	(6	)		20.60
Expired	—			—
Outstanding at September 30, 2020	7,430			$	10.30			5.9 years		$	83,152
Options exercisable at September 30, 2020	5,264			$	6.96			4.9 years		$	75,130
Options vested and expected to vest at September 30, 2020	7,382			$	10.23			5.9 years		$	83,042

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options of the date of exercise) during the year ended September 30, 2020 was $27,973. During the year ended September 30, 2020, $18,927 was received from the exercise of stock options. The remaining stock options exercised during the year ended September 30, 2020 were effected through a cashless net exercise.

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A summary of the status of the Company's nonvested stock options as of and for the years ended September 30, 2020, 2019 and 2018 is presented below.

	2020							2019							2018
(In thousands, except per share amounts)	Shares			Weighted Average Grant Date Fair Value/Share				Shares			Weighted Average Grant Date Fair Value/Share				Shares			Weighted Average Grant Date Fair Value/Share
Nonvested at beginning of period	2,379			$	4.96			3,335			$	4.11			4,300			$	1.36
Granted	823			$	6.06			1,114			$	3.87			1,380			$	7.91
Vested	(864	)		$	4.52			(1,559	)		$	2.61			(2,180	)		$	1.20
Forfeited	(172	)		$	4.94			(511	)		$	4.38			(165	)		$	3.27
Nonvested at end of period	2,166			$	5.56			2,379			$	4.96			3,335			$	4.11

The total fair value of options vested during the year was $3,906, $4,064 and $2,623 for the years ended September 30, 2020, 2019 and 2018, respectively.

Restricted Stock Units

The following is a summary of the RSU activity for the years ended September 30, 2020 and 2019. On November 2, 2019, 1,158 stock-settled RSUs vested, resulting in the issuance of 739 shares of common stock to the grantees and 419 shares of common stock to treasury to satisfy withholding tax obligations.

	Shares			Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2018	1,213			$	20.88
Granted	883			$	12.69
Vested	(24	)		$	20.75
Forfeited	(70	)		$	15.84
Outstanding at September 30, 2019	2,002			$	17.45
Granted	394			$	23.05
Vested	(1,555	)		$	18.79
Forfeited	(91	)		$	15.35
Outstanding at September 30, 2020	750			$	17.86
Vested and expected to vest at September 30, 2020	729			$	17.79

Expense Measurement and Recognition

The Company recognizes share-based compensation for all current award grants and, in future periods, will recognize compensation costs for the unvested portion of previous award grants based on grant date fair values. Total share-based compensation expense was $10,535 during the year ended September 30, 2020, of which $10,509 was non-cash. Share-based compensation expense was $19,903 and $15,742 during the years ended September 30, 2019 and 2018, respectively.

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Reported non-cash share-based compensation expense was classified on the Consolidated Statements of Operations as shown in the following table:

	Year Ended September 30,
	2020				2019				2018
Cost of services	$	91			$	142			$	80
General and administrative	10,418				19,761				15,662
	$	10,509			$	19,903			$	15,742

The unrecognized compensation expense related to stock options and RSUs was $8,815 and $10,445, respectively at September 30, 2020, and is expected to be recognized over a weighted average period of 2.3 years and 2.6 years, respectively.

The Company has little historic data with respect to estimates of expected employee behaviors related to option exercises and forfeitures. As a result, in addition to Company data, the Company has used historic data from public disclosures of comparable companies which the Company believes to be representative of its own expected employee behaviors.

The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the assumptions noted in the following table. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate.

Option valuation assumptions for options granted are as follows:

	Year Ended September 30,
	2020		2019		2018
Expected volatility	24.2% - 77.1%		26.3% - 30.0 %		23.5% - 34.3%
Expected dividends	—		—		—
Expected term (in years)	5.4 - 6.0		5.6 - 6.0		6.0 - 6.1
Risk free rate	0.2% - 1.7%		1.5% - 2.6%		2.5% - 2.8%
Grant date fair value per share of options granted	$5.33 - $8.56		$3.14 - $7.06		$5.58 - $7.96

The risk‑free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. As the Company has little history with respect to volatility of share prices the expected volatility is not based on realized volatility. The Company, as permitted under ASC 718, has identified guideline public companies who are participants in the Company’s markets. The Company obtained share price trading data from the guideline companies and based their estimate of expected volatility on the implied volatility of the guideline companies in addition to the Company’s own implied volatility. As the guideline companies are comparable in most significant respects, the Company believes they represent an appropriate basis for estimating expected volatility.

Employee Stock Purchase Plan    

Effective October 1, 2018, the Company implemented an employee stock purchase plan (“ESPP”) which allows employees to purchase shares of the Company’s stock at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last business day of a six-month purchase period within the offering period. These purchases are offered twice throughout each fiscal year, and were paid by employees through payroll deductions over the respective six month purchase period, at which point the stock was be transferred to the employees. On December 21, 2018, the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future issuance under the ESPP. During the years ended September 30, 2020 and 2019, the Company incurred compensation expense of $392 and $400 respectively, primarily in salaries and wages in respect of the ESPP, representing the fair value of the discounted price of the shares. These amounts are included in the total share-based compensation expense above. During the years ended September 30, 2020 and 2019, 58 shares and 46 shares, respectively, were issued under the ESPP plan.

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The components of accumulated other comprehensive loss were:

	September 30, 2020				September 30, 2019
Foreign currency translation loss	$	(5,535	)		$	(2,705	)
Pension benefit plans, net of tax benefit of $839 and $776	(10,396		)		(10,475		)
Unrealized derivative (loss) gain on cash flow hedges, net of tax expense of $135 and $135	(4,541		)		176
Total accumulated other comprehensive loss	$	(20,472	)		$	(13,004	)

The gains (losses) in accumulated other comprehensive loss by component, net of tax, for the years ended September 30, 2020, 2019 and 2018 are as follows:

	Foreign currency translation				Pension plans				Cash flow Hedges
Balance at September 30, 2017	$	(739	)		$	(5,373	)		$	123
Other comprehensive (loss) income before reclassifications	(3,473		)		167				(118		)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings	—				299				97
Balance at September 30, 2018	$	(4,212	)		$	(4,907	)		$	102
Other comprehensive income (loss) before reclassifications	1,507				(5,939		)		(424		)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings	—				371				498
Balance at September 30, 2019	$	(2,705	)		$	(10,475	)		$	176
Other comprehensive loss before reclassifications	(2,830		)		(927		)		(5,375		)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings	—				1,006				658
Balance at September 30, 2020	$	(5,535	)		$	(10,396	)		$	(4,541	)

Amounts reclassified out of other comprehensive loss related to the amortization of actuarial losses are included in pension expense. Refer to Note 12, “Derivative Financial Instruments” for the location in the Consolidated Statements of Operations of amounts reclassified out of other comprehensive loss related to cash flow hedges.

The Company’s cash and cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at September 30, 2020 and 2019 due to the wide variety of customers and markets into which products are sold and their dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains an allowance for potential credit losses on trade receivables. As of and for the years ended September 30, 2020, 2019 and 2018, no customer accounted for more than 10% of net sales or net accounts receivable.

The Company operates predominantly in ten countries worldwide and provides a wide range of proven product brands and advanced water and wastewater treatment technologies, mobile and emergency water supply solutions and service contract options through its Integrated Solutions and Services and Applied Product Technologies segments. The

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Company is a multi-national business but its sales and operations are primarily in the U.S. Sales to unaffiliated customers are based on the Company locations that maintain the customer relationship and transacts the external sale.

The following tables set forth external net revenue, net of intercompany eliminations, and net asset information by region:

	Year Ended September 30,
	2020				2019				2018
Sales to external customers
United States	$	1,164,634			$	1,147,649			$	1,067,636
Rest of World	264,822				296,792				271,905
Total	$	1,429,456			$	1,444,441			$	1,339,541

	September 30, 2020				September 30, 2019
Net Assets
United States	$	408,330			$	324,887
Rest of World	73,733				40,935
	$	482,063			$	365,822
Long Lived Assets
United States	$	347,832			$	304,088
Rest of World	16,629				29,496
	$	364,461			$	333,584

During the years ended September 30, 2020, 2019 and 2018, the Company reimbursed AEA Investors LP (“AEA”), the Company’s private equity sponsor, for normal and customary expenses incurred by AEA on behalf of the Company. The Company notes that these related-party transactions have not been significant in the years ended September 30, 2020, 2019, and 2018.

Lessee Accounting

As discussed in Note 2, “Summary of Significant Accounting Policies” the Company adopted ASU 2016-02 on October 1, 2019. ASU 2016-02 requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right-of-use (“ROU”) asset and a corresponding lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease using the discount rate determined at lease commencement and including any optional renewal periods that were determined to be reasonably certain to be exercised. The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial indirect costs incurred by the lessee, less any unamortized lease incentives received. ROU assets are periodically reviewed for impairment whenever events or changes in circumstances arise. During the year ended September 30, 2020, the Company incurred no impairment charges on ROU assets.

The discount rate utilized in calculating the lease liability is the rate implicit in the lease, if known, otherwise, the incremental borrowing rate (“IBR”) for the expected lease term is used. Generally, the Company cannot determine the

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interest rate implicit in the lease. The Company’s IBR approximates the rate the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

The Company occupies certain facilities and operates certain equipment and vehicles under non‑cancelable lease arrangements. Lease agreements may contain lease escalation clauses and purchase and renewal options. At the inception of a contract, the Company determines whether the arrangement is or contains a lease. A lease is determined to exist if there is an identified asset, the Company has the right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the asset. Once a lease is determined to exist, the Company determines the lease classification at lease commencement. Leases are classified as operating or finance leases based on specific criteria. Operating lease expense is recognized on a straight-line basis on the Consolidated Statements of Operations. Finance lease expense have front-loaded expense recognition that is recognized as depreciation expense and interest expense on the Consolidated Statements of Operations. On the Consolidated Statements of Changes in Cash Flows, payments for operating leases are included in operating activities and payments for finance leases are included in financing activity, with the interest component included in operating activities.

The Company’s real estate leases often include options to extend the lease term; however, the Company has not included the renewal options in the ROU asset and lease liability because the likelihood of renewal was not reasonably certain. In addition, the Company has leases that include variable lease payments, for items such as maintenance or other operating expenses, which are expensed as incurred as variable lease expense.

Adoption of ASU 2016-02, Leases (Topic 842)

The Company applied Topic 842 to all existing leases at October 1, 2019 using the modified retrospective approach. As a result, prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 840. The Company has elected the following package of practical expedients which exempts the Company from having to reassess: (i) whether expired or existing contracts contain a lease, (ii) the lease classification for expired or existing leases, and (iii) initial direct costs for existing leases. In addition, the Company elected to separate lease and non-lease components for all asset classes, did not elect to use hindsight to determine the lease term and made an accounting policy election for short-term leases which does not require the capitalization of leases with terms of 12 months or less.

As a result of adoption of Topic 842 on October 1, 2019, the Company recognized $42,073 of ROU assets related to operating leases in Operating lease right-of-use assets, net and $42,904 of corresponding lease liabilities, of which $13,596 is included in Accrued expenses and other liabilities and $29,308 is included in Obligation under operating leases on the Consolidated Balance Sheets. The difference is attributable to deferred rent balance as of September 30, 2019 that reduced the ROU asset balance on October 1, 2019, of which $73 was removed from Prepaid and other current assets and the remainder was recognized in Retained deficit on the Consolidated Balance Sheets. In addition, the Company recorded an ROU asset related to finance leases in Property, plant, and equipment, net of $2,812 and $3,245 in corresponding lease liabilities included in Other non‑current liabilities on the Consolidated Balance Sheets, with the difference recognized in Retained deficit. See Note 2, “Summary of Significant Accounting Policies” for further information on the impact of adoption.

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The following represents the components of lease cost for the year ended September 30, 2020 and other information for both operating and finance leases for the year ended September 30, 2020:

	Year Ended September 30, 2020
Lease cost
Finance lease cost:
Amortization of ROU assets	$	13,738
Interest on lease liabilities	1,981
Operating lease cost	16,052
Short-term lease cost	4,970
Variable lease cost	—
Sublease income	(56		)
Total lease cost	$	36,685

Total lease cost for operating leases was $20,088 and $18,864 for the years ended September 30, 2019 and 2018, respectively.

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	1,968
Operating cash flows from operating leases	$	16,034
Financing cash flows from finance leases	$	13,459
ROU assets obtained in exchange for new finance lease liabilities	$	14,934
ROU assets obtained in exchange for new operating lease liabilities	$	8,456
ROU asset remeasurement	$	(960	)
Weighted average remaining lease term - finance leases	3.9 years
Weighted average remaining lease term - operating leases	5.2 years
Weighted average discount rate - finance leases	4.6		%
Weighted average discount rate - operating leases	4.2		%

The following table reconciles future minimum undiscounted rental commitments for operating leases to operating lease liabilities record on the Consolidated Balance Sheet as of September 30, 2020:

Fiscal Year
2021	$	14,624
2022	11,914
2023	9,622
2024	7,259
2025	5,616
Thereafter	7,704
Total undiscounted lease payments	$	56,739
Present value adjustment	(6,176		)
Operating lease liabilities	$	50,563
Less current installments of obligations under operating leases	12,767
Obligations under operating leases, excluding current installments	$	37,796

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The gross and net carrying values of the equipment under finance leases as of September 30, 2020 and September 30, 2019 was as follows:

	September 30, 2020				September 30, 2019
Gross carrying amount	$	89,254			$	69,760
Net carrying amount	$	36,577			$	36,337

The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance lease liabilities recorded on the Consolidated Balance Sheet as of September 30, 2020:

Fiscal Year
2021	$	12,944
2022	10,603
2023	8,003
2024	5,601
2025	3,060
Thereafter	1,115
Total undiscounted lease payments	$	41,326
Present value adjustment	(3,694		)
Finance lease liabilities	$	37,632
Less current installments of obligations under finance leases	11,362
Obligations under finance leases, excluding current installments	$	26,270

The current installments of obligations under finance leases are included in Accrued expenses and other liabilities. Obligations under finance leases, excluding current installments, are included in Other non-current liabilities.

Lessor Accounting

The Company is a lessor to multiple parties. In certain instances, the Company enters into a contract with a customer but must construct the underlying asset prior to its lease. At the time of contract inception, the Company determines if an arrangement is or contains a lease. These contracts generally contain both lease and non-lease components, including installation, maintenance and monitoring services of the Company owned equipment, in addition to sale of certain constructed assets. In situations where arrangements contain multiple elements, contract consideration is allocated based on relative standalone selling price. Lease components associated with underlying assets that have an alternative use are classified as operating leases with revenue recognized over time throughout the lease term, within Revenue from services on the Consolidated Statements of Operations. Lease components associated with underlying assets that have no alternative use are classified as sales-type leases, with point in time revenue recognition at the on-set of the lease. or classified as financing transactions, with over time revenue recognition at the on-set of the construction of the underlying assets. In order for a component to be separate, the customer would be able to benefit from the right of use of the component separately or with other resources readily available to the customer and the right of the use is not highly dependent or highly interrelated with the other rights to use the other underlying assets or components.

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As of September 30, 2020, future minimum lease payments receivable under operating leases are as follows:

Fiscal year
2021	$	109,312
2022	62,618
2023	44,686
2024	30,827
2025	25,097
Thereafter	155,564
Future minimum lease payments	$	428,104

Guarantees

From time to time, the Company is required to provide letters of credit, bank guarantees, or surety bonds in support of its commitments and as part of the terms and conditions on water treatment projects.  In addition, the Company is required to provide letters of credit or surety bonds to the department of environmental protection or equivalent in some states in order to maintain its licenses to handle toxic substances at certain of its water treatment facilities.

These financial instruments typically expire after all Company commitments have been met, a period typically ranging from twelve months to ten years, or more in some circumstances.  The letters of credit, bank guarantees, or surety bonds are arranged through major banks or insurance companies. In the case of surety bonds, the Company generally indemnifies the issuer for all costs incurred if a claim is made against the bond. 

The following summarizes the Company’s outstanding letters of credit and surety bonds as of September 30, 2020 and September 30, 2019, respectively.

	September 30, 2020				September 30, 2019
Revolving credit capacity	$	45,000			$	45,000
Letters of credit outstanding	12,963				12,956
Remaining revolving credit capacity	$	32,037			$	32,044
Surety capacity	$	230,000			$	220,000
Surety issuances	152,990				144,717
Remaining surety available	$	77,010			$	75,283

The longest maturity date of letters of credit and surety bonds in effect as of September 30, 2020 was March 20, 2030.

Litigation

From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation commenced against it arising from or related to: product liability; personal injury; trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed

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Accrued expenses and other liabilities consisted of the following:

	September 30, 2020				September 30, 2019
Salaries, wages and other benefits	$	67,766			$	35,206
Obligation under operating leases	12,767				—
Obligation under finance leases	11,362				17,859
Third party commissions	9,270				11,394
Taxes, other than income	5,316				5,215
Insurance liabilities	3,954				4,895
Provisions for litigation	2,580				1,533
Severance payments	970				655
Earn-outs related to acquisitions	295				611
Other	29,109				24,471
	$	143,389			$	101,839

The Company’s reportable operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. The key factors used to identify these reportable operating segments are the organization and alignment of the Company’s internal operations, the nature of the products and services, and customer type.

The Company has two reportable operating segments, Integrated Solutions and Services and Applied Product Technologies. The business segments are described as follows:

Integrated Solutions and Services is a group entirely focused on engaging directly with end users through direct sales with a market vertical focus. Integrated Solutions and Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.

Applied Product Technologies is focused on developing product platforms to be sold primarily through third party channels. This segment primarily engages in indirect sales through independent sales representatives, distributors and aftermarket channels. Applied Product Technologies provides a range of highly differentiated and scalable products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators. Key offerings within this segment include filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology and aquatics technologies and solutions for the global recreational and commercial pool market.

The Company evaluates its business segments’ operating results based on earnings before interest, taxes, depreciation and amortization, and certain other charges that are specific to the activities of the respective segments. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and

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certain other charges. Certain other charges include restructuring and other business transformation charges that have been undertaken to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs, certain integration costs and recognition of backlog intangible assets recorded in purchase accounting) and share-based compensation charges. 

Since certain administrative costs and other operating expenses have not been allocated to business segments, the results in the below table are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.

The tables below provide segment information for the periods presented and a reconciliation to total consolidated information:

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	Year Ended September 30,
	2020				2019				2018
Total sales
Integrated Solutions and Services	$	954,542			$	919,985			$	844,851
Applied Product Technologies	559,635				631,332				579,291
Total sales	$	1,514,177			$	1,551,317			$	1,424,142
Intersegment sales
Integrated Solutions and Services	$	10,360			$	9,151			$	9,217
Applied Product Technologies	74,361				97,725				75,384
Total intersegment sales	$	84,721			$	106,876			$	84,601
Sales to external customers
Integrated Solutions and Services	$	944,182			$	910,834			$	835,634
Applied Product Technologies	485,274				533,607				503,907
Total sales	$	1,429,456			$	1,444,441			$	1,339,541
Income (loss) from operations
Integrated Solutions and Services	$	145,655			$	148,593			$	138,043
Applied Product Technologies	134,258				69,377				71,948
Corporate	(111,465		)		(158,298		)		(143,145		)
Total income from operations	$	168,448			$	59,672			$	66,846
Interest expense	(46,682		)		(58,556		)		(57,580		)
Income before income taxes	$	121,766			$	1,116			$	9,266
Income tax expense	(7,371		)		(9,587		)		(1,382		)
Net income (loss)	$	114,395			$	(8,471	)		$	7,884
Depreciation and amortization
Integrated Solutions and Services	$	67,489			$	57,217			$	48,781
Applied Product Technologies	14,226				17,675				16,734
Corporate	25,553				23,344				20,345
Total depreciation and amortization	$	107,268			$	98,236			$	85,860
Capital expenditures
Integrated Solutions and Services	$	75,551			$	73,656			$	58,464
Applied Product Technologies	6,237				7,589				11,501
Corporate	6,668				7,624				10,748
Total Capital expenditures	$	88,456			$	88,869			$	80,713

	September 30, 2020				September 30, 2019
Assets
Integrated Solutions and Services	$	835,307			$	762,707
Applied Product Technologies	598,701				657,879
Corporate	410,450				317,262
Total assets	$	1,844,458			$	1,737,848
Goodwill
Integrated Solutions and Services	$	224,381			$	222,013
Applied Product Technologies	172,824				170,877
Total goodwill	$	397,205			$	392,890

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The following table sets forth the computation of basic and diluted income from continuing operations per common share:

	Year Ended September 30,
(In thousands, except per share data)	2020				2019				2018
Numerator:
Net income (loss) attributable to Evoqua Water Technologies Corp.	$	113,649			$	(9,523	)		$	6,135
Denominator:
Denominator for basic net income per common share—weighted average shares	116,721				114,703				113,944
Effect of dilutive securities:
Share‑based compensation	4,342				—				6,221
Denominator for diluted net loss per common share—adjusted weighted average shares	121,063				114,703				120,165
Basic income (loss) per common share	$	0.97			$	(0.08	)		$	0.05
Diluted income (loss) per common share	$	0.94			$	(0.08	)		$	0.05

Since the Company was in a net loss position for the year ended September 30, 2019, there was no difference between the number of shares used to calculate basic and diluted loss per share. Because of their anti-dilutive effect, 2,512 common share equivalents, comprised of employee stock options, have been excluded from the diluted EPS calculation for the year ended September 30, 2020.

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(Unaudited, in thousands, except per share data)

Three months ended	December 31, 2019				March 31, 2020				June 30, 2020				September 30, 2020
Revenue from product sales and services	$	346,105			$	351,663			$	347,827			$	383,861
Gross profit	105,715				111,206				110,234				122,648
Interest expense	(13,583		)		(13,252		)		(10,485		)		(9,362		)
Income tax (expense) benefit	(2,603		)		7				(740		)		(4,035		)
Net income	53,506				7,910				21,841				31,138
Net income attributable to Evoqua Water Technologies, Corp	53,145				7,812				21,384				31,308
Basis earnings per common share	$	0.46			$	0.07			$	0.18			$	0.26
Diluted earnings per common share	$	0.44			$	0.06			$	0.18			$	0.26

Three months ended	December 31, 2018				March 31, 2019				June 30, 2019				September 30, 2019
Revenue from product sales and services	$	323,002			$	348,628			$	360,343			$	412,468
Gross profit	88,730				95,611				111,294				130,327
Interest expense	(14,443		)		(14,474		)		(14,842		)		(14,797		)
Income tax benefit (expense)	4,514				4,579				(7,959		)		(10,721		)
Net (loss) income	(16,288		)		1,573				4,290				1,954
Net (loss) income attributable to Evoqua Water Technologies, Corp	(16,730		)		1,384				4,135				1,688
Basis (loss) earnings per common share	$	(0.15	)		$	0.01			$	0.04			$	0.01
Diluted (loss) earnings per common share	$	(0.15	)		$	0.01			$	0.03			$	0.01

None.

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SCHEDULE I-Evoqua Water Technologies Corp.

(Parent company only)

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2020				September 30, 2019
ASSETS
Current assets	$	10,871			$	335
Due from affiliates	5,821				—
Cash and cash equivalents	4,972				121
Prepaid and other current assets	78				214
Investment in affiliate	489,745				385,175
Total assets	$	500,616			$	385,510
LIABILITIES AND EQUITY
Due to affiliates	—				9,747
Total liabilities	$	—			$	9,747
Common stock, par value $0.01: authorized 1,000,000 shares; issued 119,486 shares, outstanding 117,291 at September 30, 2020; issued 116,008, outstanding 114,344 shares at September 30, 2019	1,189				1,154
Treasury stock: 2,195 shares at September 30, 2020 and 1,664 shares at September 30, 2019	(2,837		)		(2,837		)
Additional paid‑in capital	564,928				552,422
Retained deficit	(62,664		)		(174,976		)
Total shareholders’ equity	$	500,616			$	375,763
Total liabilities and shareholder’s equity	$	500,616			$	385,510

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SCHEDULE I-Evoqua Water Technologies Corp.

(Parent company only)

Condensed Statements of Operations

(In thousands)

	Year Ended September 30,
	2020				2019				2018
Other operating income	$	16			$	73			$	78
General and administrative expense	(476		)		(303		)		(2,142		)
Net income (loss) of subsidiaries	114,109				(9,293		)		8,199
Income (loss) before taxes	113,649				(9,523		)		6,135
Benefit for income taxes	—				—				—
Net income (loss)	$	113,649			$	(9,523	)		$	6,135

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SCHEDULE 1-Evoqua Water Technologies Corp.

Condensed Statements of Changes in Cash Flows

(Parent company only)

(In thousands)

	Year Ended September 30,
	2020				2019				2018
Operating activities
Net income (loss)	$	113,649			$	(9,523	)		$	6,135
Adjustments to reconcile net income (loss) to net cash used in operating activities
Net (income) loss of subsidiaries	(114,109		)		9,293				(8,199		)
Foreign currency exchange gains on intercompany loans	(15		)		—				—
Changes in assets and liabilities
Due from affiliates	(3,990		)		—				—
Due to affiliates	(9,747		)		1,343				8,812
Accrued expenses	160				—				(61		)
Prepaids and other current assets	(24		)		(161		)
Net cash (used in) provided by operating activities	$	(14,076	)		$	952			$	6,687
Investing activities
Contributed capital	$	—			$	—			$	(140,999	)
Net cash used in investing activities	$	—			$	—			$	(140,999	)
Financing activities
Proceeds from issuance of common stock	$	18,927			$	363			$	137,605
Stock repurchases	—				—				(230		)
Taxes paid related to net share settlements of share-based compensation awards	—				(1,270		)		(8,807		)
Net cash provided by (used in) financing activities	$	18,927			$	(907	)		$	128,568
Change in cash and cash equivalents	$	4,851			$	45			$	(5,744	)
Cash and cash equivalents
Beginning of period	121				76				5,820
End of period	$	4,972			$	121			$	76

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SCHEDULE I-Evoqua Water Technologies Corp.

(Parent company only)

Notes to Financial Statements

(In thousands)

1. Basis of Presentation

Basis of Presentation

In the parent‑company‑only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries. The Company’s share of net income (loss) of its consolidated subsidiaries is included in consolidated income (loss) using the equity method. The parent‑company‑only financial statements should be read in conjunction with the Company’s consolidated financial statements.

2. Guarantees and Restrictions

As of September 30, 2020, EWT Holdings III, Corp., a subsidiary of the Company, had $819,276 collectively of debt outstanding under the First Lien Term Loan. Under the terms of the credit agreements governing the Company’s senior secured credit facilities, EWT Holdings II, Corp. has guaranteed the payment of all principal and interest. In the event of a default under our senior secured credit facilities, certain of the Company’s subsidiaries will be directly liable to the debt holders. As of September 30, 2020, the Term Loan Facility had a maturity date of December 20, 2024. The credit agreements governing the Company’s senior secured credit facilities also include restrictions on the ability of the Company and its subsidiaries to (i) incur additional indebtedness and liens in connection therewith; (ii) pay dividends and make certain other restricted payments; (iii) effect mergers or consolidations; (iv) enter into transactions with affiliates; (v) sell or dispose of property or assets; and (vi) engage in unrelated lines of business.

3. Dividends from Subsidiaries

There were no cash dividends paid to Evoqua Water Technologies Corp. from the Company’s consolidated subsidiaries of each of the periods ended September 30, 2020, 2019 and 2018.

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•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

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